The other day I was watching my daughter playing with a
group of children at her nursery. I didn't quite follow the rules but it was a
picture card game with the apparent objective of winning as many cards as
possible.
After a short while a couple of smug-looking kids (you know
the sort!) had mastered the game and accumulated the majority of the cards to
the obvious disdain of the rest, including my daughter.
I was waiting for the inevitable tears and tantrums but
instead something interesting happened - the children holding the least cards
casually got up and walked away to go play a more fun game, leaving the now
much-less-smug looking kids holding their (suddenly worthless!) cards.
I'd forgotten about the nursery incident until last week
when I was reading an Oxfam report about global inequality. It contains this
rather startling statistic: In 2015, just 62 individuals had the same wealth as
3.6 billion people. So basically half the world's money is with 62 people. That
got me wondering, how is this different from the nursery scenario? Or rather,
what's to stop the 'have nots' from simply wandering off and playing a
different game? After all, it's all just bits of card and paper, right?
Not so fast! Don't underestimate Protectionism - Clearly if
you're doing rather well out of the existing system you don't want a new system
nullifying your position. Here's a gentleman who experienced this first hand
recently.
Meet Mikhail Shlyapnikov (pictured).
Mikhail is a farmer in a small Russian village called
Kolionovo, about 100 miles east of Moscow. One day Mikhail gets hold of a
colour printer and decides it would be a laugh to create a currency for his
village called "Kolions", a kinda fun form of IOU for bartering between
his farmer buddies. It's all going well until he is taken to court by
prosecutors from the Russian Central Bank and ordered to cease immediately. His
defence is that it was just a "game". The RCB called it illegal and a
threat to Russia's sole legal currency, the ruble, but he pleaded..."One
peasant can't bring down the banking system.”
Now it's unlikely that Mikhail's dodgy inkjet printed Kolion
notes would have unseated the mighty Ruble but that is not the point. What
Mikhail didn't know was that he had unwittingly challenged was a concept, not a
currency. That concept is what we call "Bank" and it's a license to
create money.
When you strip away all formalities of his situation you're
left with a pair of colour printers. One in Mikhails's barn and one in central
Moscow, both churning out pretty paper. Who says one bit of paper is worth more
than the other? Well it's lots of people with guns working for people who have
a lot of said paper! It's the nursery school all over again only this time you can't
walk away so easily.
What's the alternative?
This is where my Bitcoin friends pipe up and extol the
virtues of the cryptographic beauty of their favourite currency. True its
decentralised nature solves, or rather mitigates the ability of incumbent authorities
and regulators to go after the source and shut it down.
Unfortunately Bitcoin is as much a technology as an economic
innovation so it has followed the Technology Adoption Cycle which, when applied
to a tech currency, maps to a pretty daunting looking wealth distribution
pyramid. In fact..."1% of the Bitcoin Community Controls 99% of Bitcoin
Wealth"...so we're not really solving the original Nursery problem as the
game is already stacked in favour of early adopters and anyhows we're just
swapping one currency with another. One backed by military power, the other by
computing power.
If we are going to really shake the status quo we're going
to have to look at it in a fresh way, or in the words of Matt Damon in The
Martian, "going to have to science the sh*t out of this.”
So what if we didn't have currencies imposed on us by the
state. What if everyone, every business and every (internet of) thing could
create their currencies. Not one that's backed by force or computing power but
by the reputation of the creator of the currency, like what we're building in
Secco.
Instead of a Russian Central Bank or a Bank of England or a
US Federal Reserve we all become The Bank of Ourself (BOO). We have the ability
to create value backed by our ability to deliver a product or service. For
example, a plumber could issue monetary units equating to an hour of their time
or a musician could issue monetary units redeemable against one of their
tracks. It creates a fuel to power the sharing economy and enables us to
calculate value depending on the need of a service and the ability of the
provider to deliver. Importantly the holding of a currency does not equate to
our desire to take up the service offered, just like a bank note today is a
promise to pay the bearer X equivalent in Y, even though we've little desire to
do so.
The outcome will be a gold rush of currencies similar to the
Dot-Com boom, a kind of Geocities for money. Those of us on the internet in
1996 will remember online communities like Geocities or Angelfire where anyone
could get their own bit of internet real-estate and put up whatever content
they wanted.
The majority of the personal sites didn't get many hits but
a few sites from these communities and others from the early days emerged into
movements in their own right, such as Craigs List which was originally just a
list of events and classified ads in the San Francisco bay area and expanded to
now serve 570 cities in 70 countries. What if the same happen for currencies?
What if someone's personal currency expanded to become the de facto global
currency of choice? Perhaps a peasant really can bring down the banking system!
Here's where we come to that important thing call Trust.
Mikhail's homemade bank notes work in his small village because everyone knows
him and trusts him and that's what promotes his paper into a currency. But what
about outside of his village or even the other side of the world? Who is going
to believe in Mikhail's notes in Hong Kong? This is exactly why, since the dawn
of coins, we've been putting a VIPs face (usually king, queen or emperor dude)
on them, not the face of the chap or logo of the organisation that actually
mints the coins.
So if you were to make a bet on who's money would win out
where would you put your, ahem, money? Well last month was the 30th anniversary
of The Economist's Big Mac Index. the BMI is a lighthearted tool used to gauge
the relative value of global currencies. The theory being that wherever you go
in the world there is a McDonalds and so the Big Mac is one thing that can be
used to compare pricing across currencies.
Now let's turn this around - suppose the Big Mac wasn't a
yardstick to measure currencies but a currency itself, issued by McDonalds and
redeemable by the bearer for 1 Big Mac.
It would be a globally recognised unit of value backed by
the reputation of a globally recognised brand. It could just as easily be a
Cappuccino Coin from Starbucks or CocaCoin. Holding these coins doesn't mean
you want Big Macs, it just means you trust the organisation in question to
deliver on the promise the coin represents. It's similar to what is happening
in Sub-Saharan Africa with M-Pesa. It's a tokenised representation of mobile
phone air-time which has become a currency. Holding lots of M-Pesa does not
mean you're a talkative type, it just means you recognise the value of airtime.
In this multi-currency world an evolutionary force weeds out
the weak currencies in a sort of survival of the trustworthiest battle. The
result is a spectrum of individual, local, national, corporate and international
currencies to choose from.
But hang on, isn't a Big Mac coin a step backwards from
something like Bitcoin as we're heading back towards a centrally controlled
currency and just swapping one state oligarchy for a corporate one. That is
probably true and it's just a transitionary state towards something much bigger
but if I were to bet my burgers on the next global currency to emerge before
the end of this decade I'd go for Big Mac coins.
By Chris Gledhill CEO & Co-Founder,
Secco Bank
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