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The Future of Money Part 1

Why do we trust flimsy pieces of paper with the printed faces of famous people? Where does the value we place in money come from? In this video Futurist Chris Crespo explains how money is being disrupted and replaced with technology that is allowing us to capture, store and transact with value that traditionally has been excluded from our monetary system. It may well be, that in the future, your recycling, charity, and even your fitness efforts, could be captured and exchanged for goods and services that today you can only attain with money.

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The following is a transcript of the video above

Money! we all know how to spend it some of us know how to earn it some of us even know how to save it or invest it but do we actually know what money is all about? To understand how money works i’m going to take you all the way to the mid-pacific and we’re going to be looking at a group of islands called the Federation of Micronesia.

The Federation of Micronesia lies around 2,500 miles away from Australia and 3,000 miles away from Hawaii, so really is right in the middle of the Pacific. We’re interested in a small island that’s part of Micronesia called the island of Yap. The island of Yap is very popular with tourists. It has a very colourful culture but a couple of things you need to know about the island of yap is that first of all, it’s a very small island. It only has around 11,000 people living in it. Secondly it doesn’t really have a lot going in terms of natural resources. But the reason economists like talking about the island of Yap is that around 500 years ago they developed a monetary system based on these big stones called Rai coins.

500 years ago the islanders started venturing out on their canoes going to other islands in the vicinity. In some of these islands they found big sedimental deposits of limestone and they found that the limestone was malleable. They could work on it and they could shape it and give it different form. So the islanders started taking these bits of limestone and working them to create round shapes and even make holes in the middle of them.

As they kept bringing Rai stones back to the island, they became immediately very popular. First of all because it was a material that was not available in the island and secondly because the islanders could see that the person that had brought the coin over had spent some time working on it and making it round. These two attributes of money (scarcity and evidence of work) were fundamental for them to able to ascribe value to the stones.

As these Rai stones became more popular trading started to take place between the goods and services that the islanders produced and the coins. As the coins became increasingly popular islanders kept going out to the other islands and they kept bringing bigger and heavier stones back to the island of Yap. At some point they were so heavy that they would have to offload them from their canoes and they would just roll them over to the beach or in some cases they will roll them over to the chief’s house and just leave them there.

What’s really interesting is that transactions were still taking place using these Rai stones but because it was so impractical to actually move the coin from one person to the other the coins didn’t really actually exchange hands. Instead what people would do is that they would gather the neighbours, sometimes they will call in the chief, to witness whenever a transaction using Rai was taking place. Then, rather than rolling the rye over to the house of the new owner, they would just point to it. What’s really interesting here is that the money then belonged to whom everyone else remembered that the money belonged to. In essence they developed a record-keeping system that was based on the collective memory of the community.

This is a really interesting factor because a lot of the new forms of money we’re seeing emerging are based on this idea of communal record keeping. Transactions were able to take place without the physical exchange of hands .Which is very similar to the type of digitalisation that we’ve been seeing today where currency has really become this intangible way of exchanging value and buying goods and services.

So, you see, money is really just the collective narrative that we tell each other about value. US dollars Euros, Pound notes, Gold, Silver, Ria stones, and Bitcoin only have value because the community that uses it believes that it does.

What’s really interesting here is that we’re starting to see the emergence of different stores of value. Traditionally our monetary systems have been very uni-dimensional. This means that we can only transact in with things that are directly convertible in monetary terms but we all know instinctively that there’s a number of activities that take place at a social level that while we consider valuable, cannot be translated into money.

Now what’s happening is that we’re starting to see the emergence of alternative sources of value. And this is not really news to us, we’ve been used to using these alternative sources of value for some time. I think we’re all familiar with the use of coupons, vouchers and air miles. But what’s what’s particular about this alternative source of value is that usually they’re only redeemable within the community that issued them.

It is very unlikely that if you take the coupons that you’ve accumulated in a supermarket you’ll be able to go and book a hotel with them. Yet what’s happening now is that we’re starting to see communities very much like the people in yap coming up with these stores of value that are becoming exchangeable and tradable with stores of value that are popping up in other communities.

We have to consider at this point the fact that value is becoming more and more diversified and for that we need to start talking about digital currencies. What’s interesting about digital currencies is that most digital currencies have only been used so far as a way of storing value. In some cases we’re starting to see the emergence of certain types of digital currencies specifically cryptocurrencies that are started to be used as a way of exchanging value. Cryptocurrencies are moving towards being used as a form of payment and by becoming a form of payment we are in fact using them as a mechanism for value exchange.

I want you to stop and think for a second about how remarkable this is. A certain community has decided to create a code that generates these cryptocurrencies in a specific schedule. By doing this, they’re limiting the supply and generating that scarcity that we saw that was relevant in the case of the Rai stones. At the same time they’re using a system called proof-of-work to distribute these cryptocurrencies into the economy, at least into the economy within the community that uses them.

What’s really remarkable here is that while they’ve been used as mechanisms of storing value within that community other communities have started to recognise the value that they hold to the point that there’s companies now like amazon Microsoft Starbucks even Tesla that have started accepting payments in bitcoin which is one of the most famous cryptocurrencies.

Now just think about how remarkable this is. Imagine that you and your friends get together, you start generating some sort of token and you say: “we believe that this token has value.” The outside world suddenly agrees with you and they say yes we believe that this thing that you created without the intervention of any central authority like a bank or a government has value to the extent that we’re willing to exchange our products and services for it.

A great example of a community that has been able to generate its own token and transact with it comes from Israel and this is a token that was created a few years ago called Hearts. Hearts were only issued to a group of about 20,000 mothers in Israel. These mothers like any other mother would perform essential services to the community and to their families. These activities have not traditionally been part of the economic system and seldomly have been translated in monetary terms. Things like picking up the children from school, tutoring or babysitting. An entire economy that was developed on the back of the activities that these mothers performed for the community and that was rewarded with this currency called Hearts

This is a really good example of how new sources of value are popping up and being used to transact. They’re being used to exchange value within certain communities and all is happening without the intervention of a central authority a central bank or a government. We are in fact, starting to see the emergence of this multivariate scenario where all these different tokens that are storing value are starting to be generated by different communities that hold different values at heart.

We might actually be moving into a situation in which for the first time in recent history we will be able to transact and reward activities that have previously not been considered as part of the traditional economic value system.

Chris Crespo
Chris Crespo
Chris is the Co-founder of Fast Forward Banking, a Financial Media agency that seeks to bust the jargon out of banking. As a behavioural economist he enjoys exploring questions that challenge conventional thinking. He is fascinated with innovation and technology and its intersection with financial services, society, and culture. Chris is also a guest lecturer at Stanford University and Singularity University where he teaches regularly on the Future of Financial Services, the Future of Money and the Disruption of our current Banking and Monetary Systems.

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