Finance is not merely about making money. It’s about achieving our deep goals and protecting the fruits of our labor. It’s about stewardship and, therefore, about achieving the good society — Robert Shiller
Money has come a long way from shells and pebbles. Shells and pebbles could not be reduced to dust with the resulting dust having the same value as the original shell or pebble. Today, money can be broken down to dust and still remain “fungible”. Money moved from shells and pebbles to notes and coins. Then came the cloak of invisibility when money was reduced to digits and electronic information. Today, we live in an era of cryptographic currencies where money is the domain of mathematical algorithms. In the future, we could witness a boom in quantum computing which may further reduce money to signals. This article traces the factors that have given rise to nano money which can be broken down and transmitted instantaneously across the world. The result will be a rapid increase in the velocity of money, improved efficiency in processing money, significantly different payment systems and net benefits to the end user. Most importantly, money can be used for the truly altruistic goal of serving society. It would be the equivalent of the common man (Prometheus) stealing fire from an unequal ruler.
Solving The Immigrants Dilemma
Six years ago, I left India to pursue higher education in the United States. The United States Dollar (USD) was valued at Indian Rupees (INR) 55.13. Since then, it has risen to $64.90 today (an 18% increase) after reaching a peak of $68.80. The foreign exchange market ($5.3 trillion) is the largest market in the world where pure demand and supply dictate currency prices every second of every day in a year.
The foreign exchange market has been ‘the market that never closes’ before cryptocurrencies were even heard of. I learnt of Bitcoin in 2013 after reading a Bloomberg article on the topic. That’s almost 4 years after Satoshi wrote his famous whitepaper on Bitcoin.
The constant volatility that immigrants face when buying or selling foreign currency is nothing new. Countless immigrants have faced the same dilemma for years. In fact, as admission season approaches, the Dollar spikes against the Indian Rupee fueled by the increased demand from students. The rising Dollar in turn puts additional pressure on students as they rush to make payments in Dollar. There is a myriad of fees that need to be paid even before the student puts his foot on campus. From application, admission and Visa fees to rentals, students account for a sizable chunk of cross border payments.
The monetary implications of a study abroad adventure do not even come close to the angst and complexity of human emotions that an international student goes through while contemplating the future. It may sound ridiculous but for many students, its the first time they step into an airplane.
The agony gets compounded when cross border remittances involve a bunch of intermediaries that eat up a significant portion of the money being transferred.
As per the Pew Research Center, the global remittance market is estimated to be around $600 billion of which $450 billion is sent to emerging markets generating $30 billion in remittance revenue.
Creating an Internet of Value that allows money to flow instantaneously and cheaply is the next evolution in the shape of money. The cross border payment landscape is an incredibly complex architecture generating significant remittance fees.
Lets say you want to send a $100 from your bank account in the US to your grandparents in Asia. What you will not notice is the incredibly complicated plumbing that goes behind transmitting that payment. What you notice is the remittance fee you pay for the transaction and the time delay you encounter in sending the payment.
With the Blockchain, the sending and receiving bank could simply send the money and Distributed Ledger Technology (DLT) which will record the transaction will be available to the central banks to review and monitor. Theoretically, both the cost and time delay in sending a cross border payment will go down substantially.
Also, money will become sub-atomic in the sense it can be broken down to the smallest decimal that we can imagine.
Market Demand For Micro Payments
In economic theory, a good is fungible if one unit of the good is substantially equivalent to another unit of the same good of the same quality at the same time and place. As per Investopedia, “money is fungible — money that is raised for one purpose can easily be used for another”. Likewise, money takes various forms from notes and coins to cryptocurrencies all co-existing at different levels of penetration across different geographies. Crypto currencies pave the way for micro-payments.
There were very few subscription businesses when I started studying business management. Netflix was just getting off the ground. Today, as revenue models get transformed to “pay as you go” subscription models, money has to keep pace. It has to be able to address instantaneous needs. Today
For instance, writers in Medium Partner Program get paid in all sorts of denominations that can be broken down to mere cents. Therefore, money has to be be able to support micro consumption. Apple’s cloud storage could cost as less $2 a month. For the user, it is a small payment. For business such as Apple, it is a volume game with very low marginal cost.
The beauty of micro payments is that it can help divisibility of goods. Its very similar to breaking down calories in your diet. An app that can help you break down calories to an individual ingredient level can help you monitor your calories better.
Consider, for example, a standard Starbucks cup of coffee. Let’s say you don’t want to pay for a sleeve or a lid, it’s theoretically possible to split the individual components of an item and pay for them using cryptocurrencies.
To Bold, New Beginnings
The Blockchain has ushered in a new era of rethinking current financial and economic systems. Many Bitcoin detractors argue Bitcoin has no intrinsic value. However, to Bitcoin supporters, that argument seems to be a case of deja vu. Ever since currencies, got off the gold standard, there was no good way of measuring the intrinsic value of fiat currencies resulting in a fragile but lasting economic order.
The only way to measure value was economic stability of a country and the ability to print its way out of financial crises. This doesn’t in any way demonstrate that the Blockchain is the panacea for all monetary issues. In fact, the traditional Blockchain suffers from a trilemma i.e. the inability to achieve security, scalability and decentralization all at the same time.
What the Blockchain does is to open the mind to a new way of thinking. However, until all the creases are ironed out, it is far from perfect.