Is The NFT The Next Step In The Evolution Of Money?

Comparing NFTs to Money

In our previous article ‘What Are NFTs?’ we discussed what an NFT is, and briefly had an overview of all the uses cases, applications and possibilities that the NFT can provide.

Though, to further understand what an NFT is, we will consider how it is a representation of ownership, and we will compare it to another form of ownership-representation we are all very familiar with: money.

Here we will ponder where NFTs fit in relation to money, to gauge their economic relevance, and get a better idea of how often people might realistically use NFTs.

What is money?

Paper, moula, guap, cheese, lettuce, bread, cake, c-notes, greenbacks, scratch, dough, cha-ching… All slang terms for “what makes the world go round…” money.

Money is defined by the websters dictionary as something generally accepted as a medium of exchange, a measure of value, or a means of payment. In very simple terms, money is value. Value that is agreed upon by consensus.

During the course of human history, as people developed more and more sophisticated societies, they began to branch out into business and commerce with other nearby societies. Over time, the generally accepted mediums of exchange evolved, and many forms of money emerged. In modern times we have both physical and non-physical money as a result of this long evolution of money.

It is important to note that NFTs are NOT money, and are NOT necessarily banking-related, but we can use the characteristics of what money is to help describe what an NFT is.

What is the evolution of money?

Over the course of human history. People devised a plethora of ways to make important exchanges starting from the earliest forms of trade until what is now our current global economy. This trail of accepted behaviors of exchange, guided what is now sometimes referred to as “the evolution of money,” in other words, how people decided and shared value.

The role of money was to help facilitate people being able to trade accurately and fairly with each other, despite not always having the exact same forms of value to share. Over millennia money became a widely-recognized way for different people, of different lands/culture/languages, to trade accurately and fairly with each other, ideally for mutual benefit.

The evolution of money is what exchanges looked like over the course of human history, as trade developed, as civilizations and economies grew, and as more and more sophisticated methods of accounting were required. The evolution of money is commonly broken into the following stages:

1) Commodity Money:

In the earliest societies people relied on their most valued common goods and commodities as money. Whatever the consensus deemed valuable was considered worthy for trade. This exchange of goods was known as the ‘barter system’ of trade. Goods like weapons, furs, wheats, grains, tools, utensils, animal skins, and more were commonly used as money.

2) Metallic Money:

From the barter system we progressed to the most common form of money, metallic money. As societies became more advanced and trade became more widespread, commodity money gradually shifted into precious metals like gold, silver, and copper. Metals were melted and minted into coin. Widely used because of their ease of handling, mobility, and clearly countable qualities.

3) Paper Money:

As a natural progression from metallic money, which could also be cumbersome to carry and handle, especially in larger quantities, and was vulnerable to theft, paper money was the next invention. Issued by central banks and governments, paper money worked in tandem with metallic money for most of human history.

4) Credit Money:

As banks and common accounting practices developed, alongside the development of paper money, there was a credit system developed allowing for people to keep part of their cash stored at the banks, which they could withdraw at their convenience through cheques, or eventually, credit cards. Cheques and credit cards, although not money themselves, perform the same function (this important note is the reason why we can eventually compare NFTs to money, and wonder where it belongs).

5) Plastic Money:

Plastic money, a very, very common and widespread form of money in the 21st century, includes money like credit cards, gift cards, prepaid debits, handheld tokens, forex cards, atm cards, and more. This is the form of money we are most familiar with in common times, alongside paper and metallic money. This is the form of money that best interfaces with newer technologies that have expanded in the digital, internet-age we are currently living in.

When we think of money today, we mostly think of plastic money, in the forms of credit cards; or metallic and paper money, in the form of loose change and bills. Those of us more involved in business, or administrative tasks, might also be inclined to think of cheques, invoices, and promissory notes.

The NFT, is very much NOT money, yet IS a means of exchanging assets, in a special digitized way. Thus, in a way, it can be said that

Commodity money + paper money + credit money = NFTs

This can be how we describe NFTs metaphorically speaking. Because, NFTs can be tied to assets and commodities, can be bought and sold for crypto/credit, and eventually turned into physical cash at the end of the transaction process. Based on the variety of use cases we discussed in our previous article.

Now after that lengthy introduction to money, let’s compare and contrast what an NFT is, and whether or not it can be a part of the evolution of money. I think it is best to contextualize it according to what we already know. Knowing how NFTs compare and contrast with money, will not only help us better understand what it is, but also help us understand where it belongs.

Similarities

· Digital capabilities (both are a part of Fintech & DeFi)

· Can be used as a representation of value, for tangible & intangible goods

· Can be bartered for different kinds of assets

· Both store value over time… can be used to preserve it

· Value is agreed upon by consensus; Both fluctuate in value according to supply & demand… with currencies value shifting according to imports/exports and NFT value shifting according to the market

· Are part of the evolution of money

Differences

· Cash can be physical as well; NFTs are solely digital despite the real assets they represent

· Cash is a more direct ownership; NFT is indirect PROOF of ownership

· Cash requires a contract to initiate special functions; NFT IS the contract with clauses already built-in

· The auxiliary functions of NFTs as a token (collectible, ID, membership, etc.) don’t fully translate to cash money

· Cashes value lies a lot in it’s fungibility, in it’s MULTIPLES; NFTs value is in it’s non-fungibility and it’s rarity.

· Cash is extremely liquid, NFTs (that are often treated like an asset themselves) are not very liquid

Every form of money has it’s pros and cons, and the systems people grow accustomed to, in an ideal world, would be the one’s of their greatest benefit overall, and we haven’t tested or tried out these newer systems that we seem to jump into head first, while maybe too quickly abandoning what’s already worked, for the sake of “future progress.”

Even now we still have to use money just to describe and understand NFTs because we don’t even fully grasp or know what it is yet. Only a handful of people have any significant understanding of the world of blockchain, and even amongst that group of “in the know” individuals in the web3 space, there is not always a transferable standardization of processes.

It is beautiful to have as many options as we do now, but it may become more and more necessary for us to DECIDE what we want our main modality of money to be and why? Will it be cash, plastic, or digital, and why? Educating ourselves on the various implications and leaning more towards the ones we prefer.

NFTs Are Beside The Evolution of Money But Not Within It

Even though credit is heavily in use, especially since the boom of the internet, our relationship to money has remained a fairly physical one, even if it’s as light as a one-tap-payment of a credit card touching a scanner. So NFTs may not directly fit into older or previous versions of what money is, yet that doesn’t eliminate the possibility of it’s future use a digital, money-related tool.

So, will NFTs become the next stage in the evolution of money? No not necessarily. But the possibility for it to play a substitute role to money, especially through cryptocurrency, might occur. Was this a pointless article? Possibly… Stay tuned for next week where we discuss how NFTs compare to digital banking options in general.