Disruptive. Unheard-of. A technological marvel. There are many ways the changes in the financial industry are described in the media with the emerging non-banks, and, everybody’s latest favourite watercooler topic – Bitcoin. But what we tend to forget is that history repeats itself more than we’d like to admit.
There are big words thrown about, in regards to the fact that money, the way we think about it, use it and move it, is getting to be more and more abstract. And with all of this ungoverned money being mined, and funds being moved virtually, keeping track of it all seems more difficult than ever. The truth is, it’s not the first time in the history of mankind that money has achieved such a level of abstractness.
The primitive Bitcoin
There’s an island in the Pacific, about 1,200 miles from the Philippines, called Yap. Economists love it, because it helps answer a really basic question: what is money?
About 600 years ago, the habitants of the island needed to find something to act as the common currency in their community, and they found it on Palau, a neighbouring island about 300 miles away. It was limestone, which they carved into huge disks with holes in the middle for easier transport and took them back to Yap on rafts and canoes. Some of the disks were as big as cars. The disks are called rai stones and were used until the early 20th century for big expenses, such as a daughter’s dowry or buying friends. Yes, apparently that’s how much the money was worth.
Being very heavy, the rai were rarely moved when spent. They simply exchanged owners. Whenever a transaction was made, the news of a stone having a new owner didn’t take long to spread, thus becoming a part of an oral history of ownership and making it difficult to spend the same stone twice. Although not quarried anymore, the stones still have owners and are used for traditional exchanges during ceremonies and celebrations. The ownership of each rai stone may be from different villages far away, and the Yapese take great pride in owning a piece that resides in another village. Call it a foreign investment, if you will.
But to give you a real idea of just how abstract this currency was, here’s a story. A crew of workers was bringing a disk back to the island on a boat when they were struck by a storm and lost the stone in the middle of the ocean. The workers made it back to the village and told everybody what had happened, but instead of writing the stone off, the people decided that the money is still valid, even though it lies in the bottom of the ocean. The stone has a rightful owner even today, although nobody has seen it for over a hundred years.
A quick reality check
Do you see where I’m going with this? The fact of the matter is that whether it’s Bitcoins, a cheque, or any other form of modern payment, nothing really changes in the world when you transfer funds, except a few numbers on your bank statement and the conventional fact that this money now belongs to this person instead of that person. Just like the stone money on Yap. We’re not actually moving money – we’re moving ownership. And we’ve been doing it for a while now.
Still, if you’ve really been following along, the stone money bears the most striking resemblance to Bitcoin. The people with the most power (workforce vs computers) can mine them, the money never actually moves anywhere and every transaction is being kept track of openly. For Bitcoin, it’s blockchain, an open source database that contains the transaction history of every Bitcoin in circulation, and for the rai stones, it is the collective memory of the Yapese people. The openness is what keeps the system secure.
So, as much as we’d like to think that the financial industry is at a level of abstractness never achieved before, and as we are trembling with anticipation whether this whole thing will blow over at one point, maybe it helps to think that everything new is actually a well-forgotten old, reinvented. And in that light, even if the whole system should go out with a poof today, you can be sure it will be “invented” again tomorrow.