This report started life as a followup to a report we published in 2012. As we say in the current report:
Our findings in that report centred on the realisation that we were reaching the end of the initial build-out
of a digital payments infrastructure. The task of provisioning the infrastructure merchants require to accept real-time digital payments, or for two individuals to settle a debt, was largely complete. Consequently, our focus had shifted to streamlining the buying journey – from the pieces and parts to the whole.
Our key point then was that the future of exchanging value would be shaped by social forces – how payments fit into the end-to-end consumer experience – rather than the technological challenge of deploying yet-another generation of payments solutions.
This new report, which was intended to be a short update, when in an entirely different and much more interesting direction.
Our key insight this time is that we’re all thinking about money the wrong way.
It’s common to assume that we use money (cash, currency…) to build trust relationships. This assumes that our adoption of money stems from the coincidence of wants. I need shoes. You have shoes. You want a fish. I have a chicken. We use money to bridge the gap.
The problem is that this assumption is incorrect. As David Graeber points out in Debt: The First 5,000 Years, debt came before barter and the coincidence of wants. Most folk in antiquity didn’t need money. They knew everyone they interacted with, and could rely on the community to enforce the collection of a debt if need be. Money’s first use was as a measure of value, typically to help calculate damages in a criminal or civil manner. Communities had carefully drawn up lists to capture exactly what you owed, in a convenient currency, someone if you destroyed their house, stole their food. In Somalia, for example, they use camels (commodity money). The other uses of money – as a medium of exchange and store of value – came later.
This is a fascinating fact, is it points out that we have the consumer-merchant relationship backward. We’re focusing on the transaction when we should be focusing on the relationship. The future of payments is not micropayments and tap-and-go. Indeed, the future of payments might be to use a loyalty scheme (a complimentary currency) to anchor the relationship and then move the transactions from the centre of the relationship to the edge. This ties is cultural preferences that we have, and which equate money and transactions as “dirty”. The future of payments might be not to have payments at all.
Bitcoin and the whole cryptocurrency thing is influenced by this too. There’s a huge amount of noise in this area at the moment, and everyone one is waiting for the killer app that will drive Bitcoin (or another cryptocurrency) into mass adoption. If, however, you view Bitcoin adoption as a cultural problem, rather than the search for a killer app, then you end up at the conclusion that no cryptocurrency will become much more than a large niche. The best equivalent in the current environment that we’re all familiar with would be a large frequent flyer scheme. It’s hard to scale trust, even with technology support, and these frequent flyer schemes seem to up near a nature limit.
There is one use case for currencies growing larger, though: when a sovereign nation mandates that you pay taxes in a specific currency. This trick is behind all the major currencies, and was used by the colonial powers to pull conquered land into their monetary system. Acquire currency to pay tax, or we send the bruisers around.
We conclude in the report that the best analogy for cryptocurrencies is rum and cigarettes. Rum was used in Australia’s early days when there wasn’t enough government issued currency to go around. Cigarettes were used by prisoners or war as they had few other options.
We can expect cryptocurrencies to see some adoption in countries where the population doesn’t trust – or can’t access – the national currency. Argentina springs to mind. Cryptocurrencies are mush less useful in other countries with mature and stable economies.
A similar argument can be made against cryptocurrencies as internal reserve currencies. (And that argument is in the report.)
There’s a lot more in the report, and I’ve been told that it’s a bit of a ripping yard. Go grab a copy and read it.