Humans have been trading commodities since the dawn of civilisation. Money itself predates written history. So, although the methods have evolved, the process has remained consistent. It’s still all about value – and it still works much the same way as it did when merchants bartered livestock for beads.
Without diving into an economic lecture, what is the value of money? There isn’t any intrinsic value or use value – in short, the value is driven by demand and regulated by governments. The value to us as consumers is in what we can get in exchange for the money we have.
The Impact of Innovation
It’s important to distinguish how we pay and what we pay with. If we’re talking about the latter, that’s in fiat money. The underlying principle remains the same regardless of currency and method used: fiat money is a medium of exchange.
As consumers, we have a plethora of payment methods available to us. Of course, it often depends on where we are located and our net worth, but for the most part, we can use cards, digital wallets, bank transfers, and, of course, cash. And if we’re talking less mainstream methods, we might pay with our mobile phone minutes, exchange some cryptocurrency, or perhaps consider selling an NFT (a Non-Fungible Token, for the uninitiated).
Still, most of us – in Europe, at least – will probably reach for our familiar credit or debit card, but that’s just a force of habit. We adapt quickly to innovation when it is convenient for us – when it aligns with what we’re trying to achieve. Just think how quickly we took to contactless payments.
The interplay between innovation and payment trends is dictated by the environment. Look at the dominance of mobile payment apps in China – for many people living in rural areas, a smartphone became their first “computer”, a gateway to financial inclusion. Likewise, in sub-Saharan Africa, low resource families rely on mobile money for transfers and remittances – largely because it’s accessible without an existing bank account.
We’re still talking about what we pay with, though. If we look at how we pay, it becomes a little bit more complicated.
Innovation Beyond Traditional Banking Rails
Coming back to the topic of less mainstream methods, cryptocurrencies represent innovation beyond the traditional banking rails. With Satoshi Nakamoto’s whitepaper, the world was introduced to an alternative. When Bitcoin launched a few months later, this alternative became reality.
Instead of financial institutions processing electronic payments, cryptocurrencies operate on a digital ledger, known as the blockchain, which records transactions between two parties without the need for an intermediary. Beautifully phrased by Joshua Davis of The New Yorker, “There are lots of ways to make money: You can earn it, find it, counterfeit it, steal it. Or, if you’re Satoshi Nakamoto, a preternaturally talented computer coder, you can invent it.”
Of course, in the financial markets, value is everything. As evidenced by bitcoin, anything can become a commodity. What began as thirty-one thousand lines of code, has now captured the imagination of millions – if not billions – of consumers. Its price has subsequently skyrocketed. Remember Laszlo Hanyecz, who conducted the first commercial transaction in bitcoin? He paid ₿10,000 for two pizzas – the equivalent of a mindboggling $607.43 million if converted at the current all-time high.
As interest in Bitcoin grew, new blockchain use cases emerged. The possibilities of the technology are seemingly endless – not in the least bit restricted to financial considerations. Blockchain can be utilised to democratise legal representation, to ensure the security of medical information, and to activate a community response network in times of crisis.
The original innovation also gave rise to other decentralised digital assets, many of which combine the financial aspect with the desire to do good. Social impact initiatives leverage the blockchain to provide equitable access to the global financial system. Blockchain projects have sprung up around the world – from enabling unbanked farmers in emerging markets access to affordable financing to helping Filipinos cut remittance costs.
The Mass Adoption of Blockchain Innovation
A growth in use-cases for blockchain show that efforts appear to be working. As The Future of Money report confirms, “consumers and businesses alike, tired of the limitations and expenses of conventional financial infrastructure, are beginning to recognise the inherent potential of blockchain-powered payments.”
The authors of the report – Wirex and the Stellar Development Foundation (SDF) – see blockchain-powered payments as an alternative to traditional cross-border bank transfers, which are often prohibitively expensive for those who need them most, such as migrant workers sending money back home. In their view, blockchain is the answer – capable of bridging the gap between crypto and traditional economies, facilitating financial inclusion, and making all currencies equal.
Though they may sound like lofty goals, it’s the direction of travel. Blockchain epitomises the very definition of a disruptor, and emerging technologies such as this always present new opportunities for engaging with the world we live in. This is especially so if we’re talking about innovative technologies that expand our capabilities beyond existing rails and create something brand new altogether.
Ultimately, making blockchain-powered payments available to consumers opens up the financial sector by democratising accessibility to and use of various financial technologies – which is a force for good. Choice is no bad thing – in fact, it has always been competition that drives innovation, and this remains true for whichever economic model or political system you subscribe to. After all, it was the original Space Race between the American capitalists and Soviet communists that got us to the moon, so who knows what the future of payments could hold.