Did you know that in West Africa, back in the good old days, they used to use sea shells as money? Well, this was way way before European expeditions, and in East Africa, they used to use cattle as a form of currency; wives and bride prices used to be settled on the prestigious Zebu Dollar, and it worked well for what it was worth. You’d clown on them down south but at the end of the day, you cant eat gold. What so special about Aurum anyways? Aside for potentially being the linguistic manifestation of the clout currency of us young folk, it does have some appealing features. Its shinny and shimmery, and would make your future Indian wife look really special on her wedding day; It absorbs all the right wavelengths of light, leaving out just the right mixture of yellow, brown and orange in just the right textures and tones, that it makes it shimmer from a distance; making one look glamorous in all their instagram photos. The ancient Egyptians had so much of this stuff that they even lined the top parts of their pyramids with it. Another interesting attribute of gold is that it doesn’t corrode, like at all. It is so non reactive, it’s practically a noble metal in most respects. If you buried a bar of gold today, an explorer 5000 years in the future could dig it up and it would be in near mint, uncorrupted condition; barely any other metals have this kind of property.
The other thing is its scarcity. Did you know that most of the gold that can be dug up, has already been dug up? This is what really made it appealing for use as money, and the key ingredient in the cocktail of this whole idea of universal exchange. It’s almost too scarce in fact; 99% of all the humans that have ever existed have never even touched gold in its purest form, and chances are, that number will only go up moving forward irregardless of how far we push those population candlesticks. Ultimately, this is what made gold a bad idea as money, because it was too scarce for normal use, and by my regards, was probably one of the key reasons holding back most civilizations in the past; This idea that money has to be hard to work, restrictive in design and frictional in use. It’s a simple formula that most economists hate when it comes to macro-economics; hard to make, hard to spend, and hard to spend, hard to make. It’s a vicious cycle that can easily collapse an entire economy; contemporarily, its outcome is usually deflation, prices of everything dropping as the value of money rises against all assets exposed to it. Now when it comes to money, most economists have settled on some characteristics that are typical to perfect potential, such as accessibility, ease of use, mobility and the such. There are other informal characteristics that have been tied to money that are more attributed to a financial system, rather to the underlying asset that is money. I noticed most of the worlds economy is debt driven, and most people believe that the value of our paper cash is derived from the fact that it is bound by a debt mechanism. Thats not really the case.
It has value because it is scarce, despite a debasement of a few tens of billions each fiscal year, and thats pretty much it. That debasement, or printing as the central bankers informally refer to it, is pretty important, because it maintains the all important attribute of accessibility and motivates people to spend it through inflation. The best kind of currencies, are the ones whose supply steadily increases over time as new actors enter the economy and more value is added in the world. But the thing is, this idea that it has to be standardized around a singular idea of debt, is really wrong. Don’t get me wrong, the idea of debt is really powerful; paying for spendable money you need in the present with money you are bound to make in the future is really eye opening (and I have every intention of implementing it on E5 in the future), but there is a small downside to this. If you have a centralized supply of money and credit, it will most certainly lead to consolidation of all capital in an economy, be it by an individual or a set of individuals. This idea isn’t mine, and I think they even have a name for this, late-stage capitalism, or post-capitalism; or the million other names they’ve come up with these days.
Now this isn’t a critique of capitalism I’m drawing up here, don’t get me wrong; Capitalism, or “Classic-Capitalism” as I prefer to refer to it, is the ideal way of using our limited time in the world around us. “Classic”, as in as it was in the 50s and 60s when the hierarchy of importance in a corporation was consumer→ society→ employee→shareholder, and not shareholder→ shareholder→ shareholder→ shareholder. Believe it or not there was a time when shareholders weren’t even really part of the equation of a company’s hierarchy of obligations, but sometime in the 70s the finance bros took over the world with their “green-screen” mandate, and everything slowly started going downhill, or as they like to refer to it, up up and up. Anyways, notice how if you have a higher number of middlemen between you and the money printer in the form of lenders, you’ll end up in a situation whereby accessing credit is prohibitively expensive, especially when you have nothing but an unproven idea or product; this being because each middleman needs to turn a profit on their loan to the next middleman to pay for the line of credit they obtained from the middleman higher up the chain. Don’t get confused here when I say ‘line of credit’, I’m using the term loosely; kindly don’t crucify me. If I cant access a line of credit easily, then I’m not able to spend the money on contracting people for work, hence the loose interpretation of the terminology.
My point here is that, centralized distribution of “our” money, printed from various reserves worldwide, will most certainly lead to consolidation of credit lines, which will make it harder and harder to fight the forever battle with deflation. Notice how I used the word ‘distribution’ and not ‘creation’. I believe to sustain such a system, you’d need to debase your currency substantially at a higher and higher rate, but this does have its shortcomings; mainly being extreme wealth inequality. Now again, I’m not here to criticize capitalism, I’m just suggesting one aspect of the system that may be a fundamental flaw to the entire thing. It’s not the system thats the problem, but the design of the money thats the problem; more people need more direct access to the money printer. Thats pretty much the solution to most of our social problems. It might sound delusional to you, because we’re so used to getting money from banks; I mean, getting it directly from the printer? its value would instantaneously collapse! we need bankers to give it to… businesses! who then pay us with it for our work! But remember, it’s scarcity that gives it value, not the fact that we had to exchange it for our productive and intellectual capital. This is where I would like to introduce you to two classes of value; what I call ‘transactional accrued value’, and ‘non-transactional accrued value’. Most of what we have today that involves exchange in value counts as transactional accrued value, because work and time was involved in acquiring it in its immediate form; I like to call these kinds of units of value “hard-money” because they are pegged to something thats material and resistive in acquisition.
We tend to assume that our currencies hold value because they emulate the scarcity of hard money, as well as the compounded resistance to its acquisition through mechanisms of debt; but in truth, all we’ve done is taken something that works perfectly as money, and just made it nearly as hard to make as gold itself. Wait a second, thirteenth century China! they tried pure paper currency! and it backfired spectacularly! If it isn’t hard, everyone will immediately abandon it! Well, originally it was backed by silver and gold, but later de-pegged entirely by the emperor to fund his numerous wars; sound familiar? or you thought those ballooning net worths on Forbes magazines came from their extreme hustle culture and numerous ventures over the last five years. Anyway my point is, transactional accrued value is a decent way of structuring the sustained valuation of money, but its polar opposite, is way better; because it has much less friction. So what do I mean by “non-transactional accrued value”? well, “soft-money” as I prefer to call it, is money whose value is derived purely from its scarcity. Now heres the thing about soft-money, it’s never been a real thing because fundamentally humans are untrustworthy. Backing your entire life’s work on a naked promise that your money is sound, is like betting on bitcoin having more than 3 miners after the last satoshi is mined in 2140.
As sad as that may sound, there is a pretty revolutionary yet undervalued solution to this problem; that being the programmable money paradigm. The fact that most of you reading this don’t even know what that phrase even means, comes to show just how bad of a job the blockchain marketing team have done over the last ten years. To you, a non-programmer, it doesn’t mean much because they are all the same on the surface; some have more zeros next to their symbols than others, and they all have like a thousand decimals in precision. But to a programmer like myself, it opens so many doors surrounding all the value I can add to your life; and for the first time, I can present you with soft-money, whose value is derived purely from its controlled scarcity and its utility in a constructed system made to drive up its scarcity through its continuous use. The foundation of what we call fiat money is based on controlled scarcity, and is the reason why paper money has value despite the fact that its material components are mostly worthless. Scarcity can be engineered, and when engineered right, it can work to create very high quality money and an even higher quality financial system. Also notice how most cryptocurrencies are transactional accrued since they involve exchange of energy through mining and value-loss risk through staking to directly access without purchasing. Personally I believe that such mechanisms, especially energy pegged currencies such as bitcoin, are a step backwards when examining the future of money because it’s like going back to using gold, except with even more transactional friction than ever before.
The programmable ledgers are much more interesting, because owing to the main utility of being a reprogrammable distributed computer, their underlying asset that serves as the liquid unit of value or money, is pegged to value-loss risk through staking; It’s hard money only because most of the scarcity created is required to secure the network. They offer a fixed but extensible computational space with a set of common parameters that allows for multipurpose use, similar to everyday computers but on a distributed network. Of course in their current states you cant do so much work since they are still limited by the lowest common denominator, that being the least powerful computers required to maintain a relatively high number of nodes who secure the network, but for the fundamentals, they are more than enough. With these distributed computers with an underlying unit of value baked into them, it becomes possible to create near perfect versions of both polar opposite asset types; a perfect dollar and a perfect asset. A perfect dollar that retains a dynamic scarcity mechanism while also being widely available for all to access directly, and a perfect asset whose value only appreciates owing to its continuously amplified scarcity and acquisition through direct contractual purchase. These two assets ideally should solve the problem of sound money and ultra sound commodities, whose value is assured and predictable.
Check out my cool progressive web-app if your into these sorts of things!