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« International e-finance | Main | Contactless update »

Money 3.0

By davebirch posted Aug 15 2007 at 3:11 PM
[Dave Birch] Well I suppose I should get with on with some work, but I've been distracted by thinking about something else and could use some feedback. I'm preparing a presentation on the history of the technology of money, and I've come up with a caegorisation which seems to work, but because I made it up I'm not sure if it has any resonance. Essentially, I need to divide the history of the technology of money in three (because things always get divided into three for this sort of thing) and make some points about the dynamics with each "segment". So here goes.

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Naturally, because I am a modern and fashionable person, instead of labeling the eras "phase 1" or whatever I have adopted the ".0" terminology:

  • Money 1.0 was a commodity (anything from grain to seashells to gold) or a physical claim on that commodity. Stretching from antiquity to early modern times, the key technologies were the technologies of the commodity itself, from mining to milling.
  • Money 2.0 arrives with electronic communications, when even paper is too substantial. I would, somewhat arbitrarily, date the Money 2.0 age from October 1861, when the newly invented telegraph put the Pony Express out of business. Despite its iconic status, the Pony Express was a commercial failure. It lasted only 18 months: when the telegraph was completed on 24th October 1861, it was doomed. I closed three days later. Sending payments faster than a galloping horse was a genuine break with the past.
  • The era of Money 3.0 is just beginning. Its central dynamic is no longer connectivity (since everything is connected to everything else) but community. We can see a glimmer of the future in MySpace and eBay, Zopa and Second Life, Paypal and Craig's List. It's the age of Reed's Law, disconnection technology and the decoupling of currency and the nation state.
Is this a useful breakdown? And if not, does anyone have a better one I can steal use with full attribution?

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]


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Hello Dave,

I have read this thread with interest and would just like to add my thoughts on the psychology of Money. I believe that it is this aspect which constitutes a major driver to the take up of new technologies such as cashless payment and digital identity.

Money 0.1A (not quite money) is represented by bartering where tangible goods or services are swapped for other such goods or services. The relative values of these goods or services are not defined and are therefore subjective. This means that if a great deal of time and effort has been expended in producing commodity X then you are unlikely to swap it for commodity Y which is to be found growing on every other bush for example.

It is this concept of effort which continues throughout the evolution of money. So when Money 1.0 appears on the scene with the invention of tokens (such as coins) you know that you have to work 100 hours in the fields in order to earn 2 groats for example. This means that you are unlikely to pay 2 groats for loaf of bread.

Money 2.0 is represented by more abstract ideas such as cheques, postal orders (remember them!) and bankers drafts. No coins or bank notes are involved and yet items of paperwork have to be filled in by hand using a pen. This time consuming act reminds us that we had to work for a month in a dismal office in order to earn that salary payment which is now sitting (invisibly) in our bank account. It is this stop to think aspect of writing a cheque which gives psychological value to the sum of money.

Money 4.0 is the arrival in the public arena of electronic money. Granted the banks and financial institutions were already using electronic funds transfers in the days of Money 1.0 but the average man in the street doesn’t get his hands on a credit or debit card with built in chip or magnetic strip until the advent of Money 4.0. Now there is no writing out of numbers using a pen and so the value of the funds being exchanged becomes psychologically more distant. It is now psychologically easier to part with large sums of money. Never the less it is still necessary to physically insert the card into a slot and type a PIN.

Money 5.0 is represented by upcoming NFC technologies where a simple wave of the hand can pass the card over the reader and pay for the goods or services. Not only is there no writing down of numbers, there is no entering of a PIN either in proposed systems where transactions less that £10 don’t require a PIN. Now there is virtually no link between the amount of money being transferred and the value to the individual in terms of the number of hours worked in order to earn that money in the first place.

Perhaps if NFC technology was integrated into a device small enough wear (eg a ring, necklace, belt or bracelet) then there is almost no physical effort and hence almost no psychological impact involved in completing a transaction because it is no longer necessary to fish out your payment card from inside a wallet, purse, handbag or pocket. The simple act of walking past a payment terminal would suffice.

[Dave Birch] If I could set my ring (or whatever) a basic payment policy and then not be bothered by it unless there's a problem, that sounds quite good to me!

Thanks for the food for thought guys, really appreciate it. I suspect that what I was clumsily working towards is some combination of what Scott calls "push" money and what Ian describes in "what then happens when cost == 0? Or, more practically, below the noise floor? Well, to skip a long story ... assets replace money". I'll refine and come back on this one.

Money 3.0 .. is FC, imho :)

The reason for this is that it allows RTGS assets. Once we get that into play (I built the tech but not the biz so I claim it is technologically possible) things start to change.

It goes back to the Baumol-Tobin model on how much money we need. Their model postulates that the driving indicator is the _cost_to_bank_ of the money user. The model has one of these cute divide by zero singularities where everything flips when the cost to get to the bank goes to zero.

Now, recall the old digicash stuff? Cost to bank was zero. However that never took off so we get a reprieve until someone does it properly. (plug: last I measured, I was doing 70ms.)

But, what then happens when cost == 0? Or, more practically, below the noise floor? Well, to skip a long story ... assets replace money.

That in a sense is what you are seeing with that list. Zopa, SL, PP are heading towards RTGS assets. They are not issuing money, but creating assets. The assets are however heading to RTGS, so they can instantly be flipped. To actually get to there will require more work, a few decades, a few thousand bankrupcies, but the path is laid out.

I would say the transition from 1.0 to 2.0 was with commodity to derivative money.

That is, derivatives are tokens that represented other assets, and therefore I'd include tally sticks in 2.0, as well as instruments traded in italian city state marketd, well before. Once that concept of derivative tokens is established, we have two things we can vary, not one, and that was immensely powerful in freeing resources for better uses.

It also enabled "instructions-money" such as paper notes and pre-internet telegraph.

(A related but distinct area would be the 13c invention of double entry book-keeping the same italians.)

Looks good to me. The Money 3.0 community you just described sounds like Patrick Chkoreff’s Loom Software at Loom.cc and Loomster.net

Each community creates their own assets type. Decentralized assets but still all connected.


Hi Dave,

Interesting posting. Would it be an idea to split up the way people 'feel' about money (and how it is represented) from the communication bit ?

As to the feeling part you would then have 1.0: money is real goods and thus physcial in essence 2.0: money is valued and standardized goods & assets such as silver-gold ; even the use of banknotes and coins rests on the basis that they still represent silver/gold and 3.0: no link to real world or gold is needed anymore: money can be virtually anything as long as you can buy or get stuff for it.

The three phases would overlap and exist at the same time (depending on the develpment stage of a country, region or population). But generally speaking you might say that only money 3.0 can be moved as fast as the light and in any shape, whereas the other forms create logistical problems.

In a broad sense societies are moving towards 3.0: you can see central banks doing this as they are selling the gold reserves: they don't really believe that it is the posession of gold that matters in bad times.

I hope this helps ...


Seems like Money 2.0 was actually paper money - the migration away from goods and barter to legal tender. Checks fall in this category as well.

Then Money 3.0 is based on electronics - bits on a wire representing value.

Money 4.0 may be community - although it doesn't resonate much with me at the moment.

I'm more intrigued with the eventual migration away from "pull payments" to "push payments". Push payments have zero credit risk - and, one might argue, are inherently the most efficient. Cash is push, checks/cards are pull. So much of the risk management just drops away with push (think FedWire).

With ubiquitous connectivity and smart devices, why won't push payments ultimately "win"? Maybe that's Money 4.0?


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