What Is Money Really?
It’s not something we all talk about enough
When we first started Luno, we talked about money all day long. We spent a lot of time discussing the future of finance, fintech and cryptocurrencies — and we still do.
But as the early conversations unfolded, we realised that, despite years of experience working in finance, we didn’t actually have a clue how money works on a fundamental level.
We knew we had a balance in our bank accounts, or coins and notes in our wallets. Yet we didn’t know where money came from, how it was issued, or why it existed in the first place.
It’s not something we talk about enough. Few of us ever formally learn about financial literacy. Money is mostly a mystery to us.
But we were wrong. Although it seemed like we’d never learned about the basics of money, we realised we had in fact learnt about it back in nursery school.
Growing up, our teachers used to play a game with us called ‘Telephone.’ They’d say a little message in one child’s ear, then they’d tell it to another child, who would tell it to another, and so on. When the teacher asked the last child what they’d heard, the answer was always far from what was said in the first place.
Children all over the world play this game, under different names. It serves an important universal purpose: it teaches us that sending a message via an unreliable conductor leads to an unexpected, even dangerous, outcome.
If it’s just three kids playing the game, it doesn’t matter. But bad stuff happens when, as a society, we’re all playing Telephone.
Money is a communication system
We tend to think of it as something in itself, something we can hold, a balance on a screen or gold. But it’s not that: it’s a means of communication.
That’s why it was created. Originally, people didn’t need money. They lived together in small communities and traded items between themselves.
It wasn’t barter. It was trust.
If you gave someone a fish you caught, you trusted that they’d give you one in the future. In small communities, people trusted each other to reciprocate.
As villages grew and started to trade between themselves, trust wasn’t enough. People didn’t know each other well enough. So they began using commodities like wheat and salt as a means of exchanging value.
Money is deeply personal
It represents your knowledge, your talents, your energy, your time. It also bypasses the need for trust.
Local currencies are purely mental constructs, and they work because we trust them. They don’t actually mean anything. It’s all in our minds. But this lets us trade with parties we don’t know — such as a person on the other side of the world you’ve never met.
Despite all the issues in the world, money does not discriminate. It’s a universal language that everyone understands. The moment you take a banknote out of your pocket, people don’t care who you are. Everything else becomes irrelevant.
Money is the best system of mutual trust ever devised- a timeless way to communicate.
To ensure this value gets communicated clearly, we want a global system with a strong signal. Unfortunately, that’s not currently the case. At the moment, the signal is distorted because it’s not suited to today’s world. The costs of that are enormous — we spend billions on remittance, and foreign exchange, a system that no longer makes sense.
There’s also the opportunity costs of this bad signal: if more people had access to a financial system, GDPs could be boosted by billions, and we could unlock endless innovative ideas.
But how can we improve the signal?
If you’d asked us a decade ago, we would have said it was impossible to do. But technology has changed since then and we do have the ability to improve things.
We have two options: fix the old system or create a whole new one
A lot of fintech companies are trying to fix the old one, which was created over the course of centuries and is messy. We take issue with this because we’ve seen in other industries that systems can’t just improve, they need replacing. This is especially true for communication, such as phones and email, where paradigm shifts are the norm.
The alternative is to build a new system, which is what cryptocurrencies offer.
Centralised currencies are like a teacher whispering to one child at a time. The message gets distorted.
Decentralised currencies are like a teacher talking to the whole class at once. Everyone gets the same message, so there’s far less distortion.
We don’t yet know what this system will look like, but we have the tools to create it.
And people are beginning to use those tools to empower themselves. Lots of people just see a Luno Wallet as a way of making money. But we see it as something more.
Every time someone buys any amount of Bitcoin or Ethereum on Luno, they are taking the first step from the old system to a new one, without realising. We all vote with our wallets and buying cryptocurrencies sends out the message that we’re willing to consider an alternative. Even if the transition takes years, people are taking action.
Every little bit of Bitcoin and every little bit of Ethereum is a vote
Our long-term vision is to upgrade the world to a better financial system. But that’s not what we’re doing right now — we’re focused on making it as easy and safe as possible to buy cryptocurrencies as part of the first step.
We can’t yet answer all the questions around scaling and regulation. But we do know that we will move towards a better system. Money is always evolving to suit the times and towards a clearer signal.
We need to start seeing money as a communication system.
We’ve all grown up accepting one system. The way forward is to start thinking about the fundamentals like a child. Do it consciously. When you open your wallet or look at your bank account, ask yourself what you’re doing. Ask the basic questions and go back to first principles.
To bank the unbanked, we need to start by unbanking the banked.