Humans have always been on a developmental journey. When we are born into thousands of years of inventions and improvements, it’s easy to take for granted what’s around us— as if they always existed. We seldom think about the changes it took to get to where we are.
Take for example, the creation of language and how that opened up a new course in human history. How it led to communication, collaboration, communities and organizations. From there, people organized a set of doctrines and came up with story-telling, a precursor to the creation of religion and so many structural pillars like law. Then came art and written language, which allowed for the recording of stories/information and thus the standardized spread of information for the first time. Then came the printing press, then radio & TV, then computers and internet, then mobile….. You get the idea!
In a similar manner, so many other things in our life today can be dated back to origins and milestones that changed the course of history forever… tools, scientific discoveries, you name it. One that I want to focus on this article, which we almost never think about, is the origin of commerce and the precursor to the concept of ‘economies’. Money.
We forget that at one point someone had to invent a way to transfer value. That mechanic had to reflect the contribution someone brought to society (food perhaps, or a tool they built), and exchange-able for another valuable sought item or service. Several iterations of money existed in the beginning, such as salt, sea shells, and most notably gold. It was this standard that provided ‘liquidity’ for the first time in commerce and thus the first concept of an economy. Of course, today we are most familiar (perhaps don’t even know anything besides) commerce using state-controlled fiat currency. So much so that we just call it ‘money,’ as if other forms outside of fiat currency don’t fall in that bucket.
But there’s one related thing that people pay even less attention to, and that’s the technologies used to facilitate the movement of money. One obvious example of this, is the coin. Silver coins were used during the Roman empire because they were (relatively) easy to store and carry, scarce, hard to replicate, etc.
To open up even more opportunities to grow the economy, the first banks were introduced and controlled by the state. They came up with a form of accounting (double entry) to keep track of who owns what, who owes who, how many coins remain, and how many coins are to be received. Later, what is essentially known today as an “IOU” was created which then led to more sophisticated forms of lending, banking, financial systems, paper money, etc.
Fast forward thousands of years, banks evolved immensely and with it so did financial products around financing and paying. For the first time, “checks” were introduced so someone didn’t have to carry large amounts of cash all the time… ATMs were created to access money one had in deposit with the bank on the go. Suddenly, these advanced forms provided a point-of-sale system, which made it possible for all kinds of businesses such as restaurants and stores and medical services to provide on demand.
Thus, it wasn’t just ‘money’ itself but also the innovation around how to exchange money that opened up new possibilities and economies to flourish.
Today, a vast portion of the world enjoys electronic forms of payment. Credit cards and debit cards not only eliminate the need for cash, but also allow us to spend in the form of borrowing, allow us to earn rewards, allow us to keep track of our spending, allow us to dispute charges on fraudulent activities. When TVs came along it gave birth to the home shopping and the infomercial empire. It also served as the foundation for a ‘credit score’ system — a new way to evaluate the creditworthiness and risk of providing a loan. I don’t know exactly how to quantify how much of consumer spending acceleration or economic expansion is attributed to the advent of credit cards, but I guarantee it’s A LOT. If anyone has figures on this please do share.
Pets.com is considered the poster child of the dot-com bubble, with critics pointing out it was “too early” for its time because back then the internet was too clunky, not widely adopted enough, and had a reputation of being “unsafe.” True, but it’s missing one key point which was the lack of a reliable, convenient checkout experience. There used to be a time when buying something online was so clunky it required you to call your bank and speak to a representative to facilitate all kinds of transactions. Horrible customer experience.
Along came Stripe and PayPal which changed eCommerce entirely. Amazon is the obvious front page of eCommerce but Stripe has arguably had a bigger impact on the growth of the industry, by creating a plug into websites and apps that connected instantly to credit card and banking systems. It’s a simple yet game-changing invention that lay the foundation for explosive growth in online sales. You could argue that if stripe existed back then Pets.com could’ve survived.
Today, anyone can start an online business. In fact some of the most well known brands like Warby Parker and Bonobos started out digitally native. The entire ‘gig-economy’ of the Ubers and AirBnBs of the world rely on these payment rails as well. And most important of all, we can’t forget about how online payments allowed easy access to subscription models that every millennial in this country is familiar with. From all kinds of retail subscription boxes like Blue Apron, FabFitFun, Birchbox, Stickfix, etc., to digital streaming services like Spotify, Netflix, Youtube, the subscription model made these businesses possible. Without innovations in payments, these businesses couldn’t exist or grow.
So what’s next for the movement of money? How will these innovations change consumer behavior and business decisions?
As great as the internet is today, one of the biggest oversights was the lack of a core payment layer. It was built to optimize for transferring information and data, but not money. It’s why emails existed decades ago and worked instantly, but paying online took much longer to develop and it’s still relatively slow/expensive — we had to build application layers and APIs to legacy banking systems to facilitate these transactions.
In contrast, this is how an internet with a ‘money transfer protocol’ inherently built in would look. First, it would allow even those without bank accounts to commerce over the internet. A merchant wouldn’t need to rely on someone using a credit card or bank wire or Venmo — instead they could receive funds directly into their digital wallet. The permissionless and immutable nature of this payment layer will guarantee the funds are received, and won’t be charged back. It would make it infinitely easier for someone in Nigeria to buy a product from Switzerland, without having to touch any fiat or any banks.
But where it gets much more interesting is with micropayments for digitally-native products. Take for example, how we consume live-content like TV. We pay a provider like Comcast or Spectrum for delivery of the content, but the content itself is paid for by advertisements. Your attention span and future spending on consumer products is what allows directors and producers to create these work of art. This puts a lot of power on not only the centralized distributors of these contents (TV networks) but also the studios that have these relationships with the networks. It’s very difficult for user-generated content to make it to the masses.
Then came YouTube and Twitch and Vine and TikTok, which all allow for user-generated content to be directly consumed by a viewer, but in this model the distribution platforms are still dependent on ads to provide their service. Consumers give up their personal data and allow the distributors to utilize and monetize it, while content creators see only a fraction of the value. Plus, having to watch ads (especially in the MIDDLE of a video) is a terrible user experience, but we don’t have any other choice.
What if, instead, we had a way to micro-pay for content, to whoever in the world, wherever in the world, directly to the creator, and have 99% of the value realized by him/her without a distributor taking a cut? It’d be like if YouTube was a non-profit with no costs. That’s what projects like LivePeer are trying to achieve. In addition to providing a market-principles based broadcasting network where providers earn tokens and users pay-per-use, content creators can also be paid directly by consumers via tokens. This level of micro economics, when dealing with fractions of a cent, simply cannot be supported easily by existing payment infrastructure such as credit cards and paypal.
This is not to say ads cannot exist. There are some models, like Vevue, where users can choose to watch ads, and be paid for their attention. This way, businesses that need to push their product can still utilize advertisement channels while still giving consumers a choice. It’s basically a more dynamic and efficient version of Youtube’s premium subscription vs watching with ads.
Beyond just supporting new types of business, this also has broader implications. Because content creators don’t have to rely on advertisers for revenue, there is less incentive to create content that is purely clickbait or maximized to have the highest metrics. A tipping feature could ensure that consumers can reward those with content they like more, and directly reward the content creator instead of also rewarding the advertisers or platform operators.
Or, take Helium for example. They’re a wireless provider but for smaller machines like IoT devices that have completely different wireless requirements than devices like your cell phone or computer, and therefore need its own different wireless network. They utilize hotspots that are deployed by people all over the map to provide this coverage. The people purchasing these hotspots to run it and provide coverage are incentivized to do so because they can acquire ‘Helium Tokens’ for their contribution. In order for IoT devices to access and send data across the network, they have to pay for it with Helium Tokens, which they need to buy from Helium Token owners. The size of these micro transactions that are occurring via APIs and algorithms and machine-to-machine communication can be in fractions of a cent, at millions of transactions at a time. This level of throughput and micro transaction once again is simply not possible using current payment options like credit cards. And it certainly can’t achieve instant peer-to-peer value transfer. No company could facilitate this level of decentralized commerce using existing payment rails.
There are many more exciting and promising examples that we could get into, from file storage sharing (i.e. a decentralize DropBox) like Storj, or CPU sharing (like a decentralized AWS) like Golem and SONM. There is even the concept of a blockchain based ‘triple entry accounting’ which I am not well-versed enough to elaborate, but has HUGE potential to disrupt accounting and auditing methods today with a much more accurate and fraud-proof system. Thousands of these ideas will emerge, and likely only a handful will survive. But I think it’s fair to say we can’t ignore the potential impact these innovations will have on the types of businesses that emerge.
They say the best technologies in the world share one commonality: people know very little about the inner workings, yet use it as an indispensable part of everyday life. Think about how little the average person knows about TCP/IP but use the internet, or how credit cards work but still swipe it everyday.
In the same way, there will come a time when value transfer over cryptographically secured network / protocol will be the norm — where transactions are occurring so seamlessly and automatically — with a nice U/I layer facing the user — that no one will even realize there’s a miraculous technology behind it. And in that world, we will see unimaginable businesses, unique revenue models, and previously unavailable services emerge. Above all, we will have superior transparency, accuracy and accountability inherently built into our financial system at the base layer. These core pillars will lay foundation for the next generation of businesses to come.