I was lucky enough to be able to attend the Digital Money Unconference today, held at Google’s office in downtown Manhattan. The event was organised by NYPAY and Consult Hyperion, the latter of which also organise the annual Digital Money Conference (not an unconference) in London. (You can see a 15m presentation on #PunkMoney at that event here.) Here are my notes on the day…
Dave Birch, director of Consult Hyperion and master of ceremonies, began the event with some comments on the coming disruption to payments and money. He drew an interesting historical parallel between now and the mid 17th century in Britain, at the onset of the industrial revolution. At the time, he suggested, most people’s predictions about the future of money would have been wildly off the mark. Instead of better quality coins, a monetary revolution took place: the Bank of England was created in 1694, government debt was monetised, and Bank of England notes began to circulate for the first time as a medium of exchange. In 1696, the Government enacted the Great Recoinage, following Isaac Newton’s advice (the modern day equivalent of putting Stephen Hawking in charge of the Fed.) By 1717 Britain was on a gold standard, and its monetary system was virtually unrecognisable compared to what it had been a few decades earlier. The transition to industrial-era money had been completed.
Dave suggested that we are at a similar juncture in history. Society is transforming itself on a similar scale to what happened in the mid 17th century, and the transformation to money will be profound: ”we’re at the beginning of post-industrial revolution using pre-industrial currency.” It was exciting to hear, and seemed to also be a consensus among conference-goers.
Dave went on to explain a bit about the unconference format. Unconferences allow anybody to suggest topics for discussion, and for people to move around between conversations as they wish. This was done by collecting Post-It notes from everybody, and organising them into themes. There were three sessions with three or four conversations taking place in and around the conference room. I’ve tried this before and it works quite well. The point is that everyone goes to what they are interested in, and can get up and leave if they don’t want to stay (“the law of two feet.”) In my experience unconferences are much more exciting and sometimes lead to serendipitous encounters of the third kind.
The second part of the introduction came from author and Wired journalist David Wolman, who I had met briefly before in London. His book entitled The End of Money is now a bestseller, which says something about the growing interest in the topic. He read some passages from it, which contained some nice anecdotes about money and his encounters with some colourful characters.
David’s first excerpt was about Marco Polo, who was one of the first Westerners to witness early fiat money, in 13th Century China. Marco Polo was apparently amazed by the “alchemy” of paper money issued by Government decree. Paper promises, made from Mulberry trees, were redeemable for coinage from the Government; their acceptance was enforced under penalty of death. The availability of a national currency exponentially increased opportunities for trade, and lead to a period of massive wealth and prosperity. The Chinese Emperor boldly decreed the notes valid “for all eternity.”
This contrasted with the view of Mervyn King, Governor of the Bank of England. David related some recent comments by King, in which he said that the perceived value of paper money depended on people’s trust in institutions. It is essentially confidence in institutions which currently keeps money and the economy from collapsing – the acceptance of money depends entirely on the belief that it has value. Once confidence goes, the consequences for society would be calamitous. King’s job is to reassure us that the Emperor still has his clothes on.
Finally, David shared an anecdote about meeting up with an Icelandic coin collector, whose collection included a 1969 10p coin from Ireland, issued by the UVF (Ulster Volunteer Force) – essentially defaced coinage designed to protest Republicanism. Physical money, though it may be becoming obsolete, continues to have an “unusual power,” with its cultural and political resonances.
There were some questions for David Wolman at this point, with Dave Birch joining in for some of the answers.
Before beginning, David said that entering into this topic was like “stepping onto the hornet’s nest,” as he had been the bout of some vitriol online. Dave Birch asked him to explain more about why digital money was seen to be threatening, especially in the US. David’s answer was that physical cash was closely associated with the right to privacy in the US (mistakenly believed to be a right to anonymity, which is never mentioned in the constitution.) Digital money is viewed as possibly paving the road to eliminating the privacy of cash, and allowing the prying eyes of the state into people’s private lives. Another factor are the many conspiracy theories about how the elimination of cash is part of a masterplan to create a single world currency. Dave Birch remarked that given the current problems with the Euro, such a project would likely never work anyway.
Another audience member touched on the fact that her parents had grown up in the depression, and were unlikely to trust anything except physical money as a result. It would be hard to convince many people, particularly from this generation, that digital money was safe. Dave Birch commented that this was a “cruel trick,” as people who hold physical cash pay higher transaction costs, owing to inflation and risk of theft. David Wolman called people who love physical cash a member of the “tactillians,” the same people who prefer physical books to eBooks. The decline of physical money is in fact part of a wider digitisation of objects, and a threat for tactillians in general. While not necessarily a rational prejudice, I also count myself as a bit of a tactillian – there is something reassuring about the physical contact with an object.
A question about government power over the money supply led David to point out that he would have liked to have written a whole chapter on Bitcoin, the peer-to-peer cyrpto-currency which is still around, despite a chorus of predictions that it would fail. Another audience member said that Americans simply had a passion for physical currency, and this was partly based on the possibility of “self reinvention,” as was the case with criminals who went West to create new identities and livelihoods for themselves with their ill-gotten cash. David Wolman however concluded that physical cash was old-fashioned technology, and would eventually become obsolete, regardless of cultural or political attachments to it.
The open spaces then followed. I attended three sessions, so I can only give a partial account of the rest of the day.
The first session I attended was about Bitcoin (or ‘Bitcoin Bitcoin Bitcoin!’ as someone had written on a Post-It note.) The first thing that was surprising was the number of people sitting at the table: about 10-15 if I remember correctly, including journalists, people working in banks, consultants and other professional people. A couple of years ago this would have been very odd indeed, now Bitcoin seems to be accepted by the mainstream at least as an idea.
The Bitcoin discussion veered in different directions, and wasn’t the most focused. A common objection was made that Bitcoin would never be able to replace the US Dollar (or other political currency) as a “dominant currency.” David Wolman pointed out that Bitcoin could simply be one part of a rainbow of currencies, and didn’t need to become dominant to be successful. This view seems correct to me: it’s an anachronism of Industrial-era thinking that any single currency has to be the “dominant one,” and replace what went before it.
It was noted that Bitcoin is not completely anonymous, because transactions can always be traced in the public block chain. It is however possible to protect your identity by keeping it separate from your Bitcoin address, as well as using various mixing services to scramble payments through multiple nodes in the network. An interesting discussion followed about privacy, and why it was a desirable feature of Bitcoin. One person said they didn’t care what the government or credit card companies knew about them. Another Bitcoin advocate suggested buying bacon in a community where it was forbidden could be a good use of Bitcoin. Perhaps another example of why privacy matters could be concealing political donations in a politically repressive country. To me, the most important point was that Bitcoin offers a degree of privacy as a feature, and some users think that makes it worth using.
Somebody else noted that it was incredibly hard to produce a fake Bitcoin (you would need more processing power that the fastest supercomputer on the planet.) Would it be possible, they asked, to apply this same counterfeiting technology to the US dollar? Jon Matonis – a libertarian Bitcoin guru – saw this comment on Twitter and amusingly compared it to “copyright offices hosting torrents.” Apart from this, there was some discussion about how to incentivise adoption, with some people thinking it was necessary to push merchant adoption first, and others consumer adoption. Someone mentioned the wildcat era of US Banking, and that counterfeiting had been the reason for its collapse — it seemed that Bitcoin at least solved this problem, and so has a greater chance of sticking around. The case for Bitcoin was also stronger in the developing world, where payment infrastructure is lacking.
The three main issues faced by Bitcoin are likely to be momentum (how to achieve it?,) making it convenient to use (perhaps with solutions like Bitcoin prepaid card BitInstant,) and trust. There have been numerous trust issues since the currency started, including cloud wallet providers running off with people’s money, or getting hacked.
What to do in the case of a Tsunami?
I thought this would be a popular open space, but only two people showed up to it. The main question here was: what happens to digital money when some catastrophic event causes a power failure, or an internet outage. In sum, the robustness of digital money seems to be an issue: unlike seashells or bank notes, it needs infrastructure to work.
We looked at MintChip, a Canadian Government project to create a digital wallet container allowing peer-to-peer transfers, as well as a cloud wallet. (See Jon Matonis’s takedown here.) My view of MintChip is that it was quite an interesting attempt at making a digital money solution which could actually be adopted: it supports transactions in Canadian dollars (and other currencies,) integrates with mobile and is platform independent. (There are some apps which have been designed for MintChip viewable here.) If a Tsunami hit where you were living, it would be better to have MintChip than Bitcoin, since transactions can be performed without needing access to the network for verification.
In summary, we found that the ability of a digital money system to work offline was an important feature, and that there were different levels of robustness to consider. We also thought the distinction between an electronic transaction and electronic money is important to maintain: electronic money could still be used offline, if it is contained in a storage device which can be verified, like a Micro SD card.
Path to Cashless Society
The Third open space session I attended was on the likely path to a cashless society. By “cashless,” I assumed the title of the session referred to physical cash. For this session we were asked to produce a narrative summary at the end, rather than a set of bullet points.
One thing we agreed is that the path to a cashless society is likely to be different depending on where you live. In Kenya, where most people are unbanked and there is a risk of being killed while transporting large amounts of cash, the value of mobile payments is obvious (the M-Pesa private mobile currency is huge there.) What’s more, it doesn’t seem to matter if developing countries skip over some intermediary steps (like having ATM machines,) and go straight to the cutting edge of payments.
In a more economically developed country like the UK, the path to cashlessness is likely to be different. Successful innovations will answer consumer needs, while being future-proof and platform independent. A good example of this is the Oyster card, a magnetic card used to pay for journeys on London’s transport network. While Oyster is currently used to pay for journeys, the system has the potential to become an “open loop”, integrating shops and service providers. Since the card already exists, and the behaviour pattern of tapping to pay is already established, this could happen quite easily. It is in fact already the case in Hong Kong, which has the highly useful Octypus card.
The bigger question to me was not finding more convenient ways to pay for things with existing money (although I’m not indifferent to it,) but the possibility that technology might lead to new, more radical forms of money created in peer-to-peer networks, rather than by Governments or banks. This would be a major disruption on the path to a cashless future, and would probably lead to Government attempts to stop it, as they lose control of the money supply (a likely futile exercise described by one person as like playing whack-a-mole with currencies.) In summary, it seemed that if this ever happens, there will be a power struggle with vested interests who won’t like it.
It was a good event, and the unconference format worked well. I got to talk to a variety of people with different backgrounds (bankers, entrepreneurs, teachers) and the general consensus seemed to be that something big and disruptive was coming, and the banks aren’t prepared for it. I think Dave Birch is correct that we are like the 17th century commentators who cannot anticipate the effect technology will have on money, even if it is useful (and fun) to speculate. Thanks to Dave Birch, Consult Hyperion and NYPay for hosting this.