Solving What Money Can’t Solve

By William Freedman - Member of FinTech Connector / New York

Hard to believe, but Paramount Pictures released Forrest Gump almost 25 years ago. Here’s my favorite quote, and it has nothing to do with chocolates or stupidity:

“Lieutenant Dan got me invested in some kind of fruit company [Apple],” Forrest recalls. “So then I got a call from him, saying we don’t have to worry about money no more. And I said, that’s good! One less thing.”

It’s all the more hilarious now since Apple is up something like 200x since the movie premiered, but that veers from this central point: Money, to many of us, is some magic potion that dissolves all problems.

So if money, the way it works today, or in 1994, or whenever Lieutenant Dan made that canny investment, is so potent, why bother with cryptocurrency? Where does fiat currency or current transaction processes fall short of any reasonable measure of success?

 Figure 1: The Robert Zemeckis film's original poster

Figure 1: The Robert Zemeckis film's original poster

What’s wrong with money?

Let’s be clear, money is great. It has evolved into a medium of exchange that also measures and stores value. After decoupling from precious metals and other underlying assets – tulips, in hindsight, wasn’t such a great idea – it has become valuable in its own right. Gold’s price is measured in dollars today, not vice versa.

And it’s backed by something that truly is worth something: the full faith and credit of a sovereign state. OK, so I wouldn’t take anything issued by Venezuela right now, but there are something like 200 UN members now, and that’s the only one that presently has a currency crisis – though others are on the verge. More often than not, that number is zero.

Money has come a long way from its roots as a way of merchants and shippers to keep track of their accounts. (It was around for thousands of years before anyone thought to etch the king’s face in it.) Today, most business is transacted in stable, reserve currencies or in national denominations pegged to one of them.

The most-traded reserve currency, the U.S. dollar, is backed by a government that’s 230 years old. The roots of Britain’s pound sterling go back well before there was a United Kingdom and, in fact, well before there was a united England. Anglo-Saxon silver pennies called sceattas circulated as far back as the late 7th century, and received the backing of King Offa of Mercia about a hundred years later. The yen, a comparative toddler, has been around since 1871. And although the euro barely predates this millennium, it’s an amalgam of such historically valuable currencies as the German mark, the Dutch guilder and the French franc. Over the past couple years, the Chinese renminbi has joined the reserve currency club. It might be a young currency backed by a young government, but it’s what one-fifth of the world’s population uses to buy groceries.

Here’s what’s wrong with money

And if all you’re doing is buying groceries, there’s not a thing wrong with money as it’s exchanged today. But the more you move away from buying goods and services with funds you have on hand, the more problematic it becomes.

And it’s not because money is a bad thing. It does pretty much everything we ask it to do, but it’s starting to go well beyond its brief as a medium of exchange and value. And it’s getting pricey, to boot.

Merchants can use it to reward early repayment with on-time discounts and punish late payment with fees and interest. It rewards loyalty by offering special deals.

But it can’t tell you anything about who’s buying what you’re selling, so it’s not an efficient marketing tool – not that it was ever designed to be one. As the efficacy of current credit scoring practices continues to be debated, we’re learning how insufficient it is as a way of determining how trustworthy a potential buyer is – again, not its original purpose. And, as I mentioned in a previous post, money talks – but it has a limited vocabulary. It is a platform for transferring value, not any other kind of content.

When you’ve done as much project management work as I have, you learn to dread “scope creep”. But over generations – and particularly since the dawn of the Information Age – a lot has been dumped on the institution of money, and money has gamely responded.

Of course, money has no will of its own. But banks do. And exchanges. And clearinghouses. And non-bank institutions that get their cut of every transaction that doesn’t involve hard cash.

 Figure 2: Silver sciat, circa 710-720. Credit: Arichis

Figure 2: Silver sciat, circa 710-720. Credit: Arichis

If we were to reinvent money using today’s technology, accepting all the accumulated scope creep as part of money’s new brief, it would look a lot different. And, because it would be able to address all these new tasks without the need of third parties, it would be a whole lot cheaper to use.

Technology to the rescue, but not without help

Messaging app-adjacent payment systems are already solving problems with money. I can transfer money from my bank account to another’s via Zelle without paying a fee or even the nominal costs of a check and a stamp. For my unbanked friends, I can use Venmo, and express with text and emojis why I’m sending the money and my gratitude for their fronting it.

Blockchain technology enables payments to be made on-time by default, via the smart contracts enabled by such alt-coins as ether. Loyalty rewards could also be applied automatically based on smart contracts.

You would be able to rate your experience with your counterparties, so that their reputations – and yours – are on the line every time you do business.

And, of course, it would maintain the same level of protection of any personal data that is not relevant to the transaction at hand. If you’re buying something that costs $100, then all the seller needs to know is that you can afford $100. Credit or debit? Really none of their business. Your date of birth? Why? Are they sending you a greeting card?

Another thing technology can do for money is to actually return it to its roots as an exchange of indebtedness. There’s a reason why it’s called a Federal Reserve Note, as in promissory note. Credit and debit payments are no longer a binary choice. Once we determine that someone’s promise to pay is good – then we could actually swap each others’ IOUs or fractions thereof to make purchases. At least one pre-ICO startup, IOU Ltd., is doing just that.

Of course, any solution can create its own problems. On a good day, technology makes things worse before making them better. On a bad day, the opposite is true. The secret sauce of any successful paradigm shift is anticipating the consequences and mitigating against the negative ones.

I spoke with the chief executive of IOU, a blockchain-based peer-to-peer platform designed to unify ecommerce transaction and customer retention processes, incorporating functions related to the reputational analytical, and expressive dimensions of money’s scope creep.

“Anonymity is a great thing to have as a default setting, of course,” IOU’s Vladimir Shevchenko tells me. “But so is community, and that’s where we need to strike a balance. If any platform – IOU included – is going to add value by forming a marketplace where people willingly share their locations and their interests and their spending habits, then of course there are limits to the anonymity. The important thing is that everyone knows exactly what they’re sending out and to whom, and that they’re okay with that level of disclosure. And that they’re assured nothing further is shared.”

So blockchain adoption, like all human endeavors, is a cycle of problem, solution, problem solution. We need to embrace this. Let’s not assume we add value just because we figured out how to do something more efficiently that’s already being done with reasonable efficiency.

Unless we in the crypto-enthusiast priesthood can identify and articulate the problems we can solve, we won’t win any converts. And 2017’s breathtaking run will remain a fond memory rather than a blueprint for the future.


William Freedman is a New York-based fintech writer. He serves as an advisor, consultant or content provider to BQT, Collective Wisdom Technologies, Exsulcoin, goTRG, IOU, OpenGift, SharEstates and others, engaging in white paper/business plan composition, media strategy and web content creation. He blogs about blockchain economics at https://medium.com/@WilliamFreedman and holds an MBA in international business from The American University.