Ght in salt’ – Wayne Pisani

The Malta Independent on Sunday - - NEWS - One World Cur­rency

providers and on­line banks.

The money avail­able through a debit or credit card is noth­ing more than de­ma­te­ri­alised fiat money loaded onto a mag­netic or chip card, or stored in an elec­tronic wal­let: a dig­i­tal rep­re­sen­ta­tion of value called ‘elec­tronic money’ – cur­rency that a gov­ern­ment has de­clared to be le­gal ten­der.

The as­pect which is strange to­day, Pisani thinks, is that money starts off with be­ing ma­te­rial and then we de­ma­te­ri­alise it. “If a cen­tral au­thor­ity or bank were to re­solve that more money in cir­cu­la­tion ought to be is­sued, in­stead of print­ing bank notes or “The­o­ret­i­cally speak­ing, it would make sense to have one com­mon de­nom­i­na­tor as a cur­rency,” said Pisani. Money has three qual­i­ties: store of value, which means it is an as­set that main­tains its value with­out de­pre­ci­at­ing; unit of ac­count, which means it has a nom­i­nal unit of cur­rency used to rep­re­sent the real value of any item (eg euro); and medium of ex­change, which means it is an in­ter­me­di­ary in­stru­ment used to fa­cil­i­tate barter.

“If we all agree that we are go­ing to use one unit then, in the­ory, we do not need dif­fer­ent cur­ren­cies. A supra­na­tional body equiv­a­lent to the IMF or UN could po­ten­tially is­sue a glob­ally ac­cepted to­ken over a mint­ing coins, it should just be a mat­ter of is­su­ing them in tam­per­proof dig­i­tal for­mat which we would trust, ex­chang­ing value in dig­i­tal money units.”

So­ci­ety is used to re­ly­ing on a cen­tral au­thor­ity, pos­si­bly to have re­course against same. Hence, the scep­ti­cism on the use of pub­lic blockchain for fi­nan­cial ap­pli­ca­tions to re­place money may be driven by such sen­ti­ment. “So long as it’s backed by a cen­tral au­thor­ity, we are trust­ing it,” says Pisani.

He ex­plained that, be­cause banks are not trust­ing pub­lic blockchains, then pri­vate blockchain so­lu­tions man­aged by blockchain.

“The re­al­ity is that so­ci­ety has evolved in so many direc­tions that hav­ing one medium of ex­change for all so­ci­ety is dif­fi­cult; con­sider the dif­fi­cul­ties faced in Europe to tran­si­tion to the Euro. Hence, whilst the­o­ret­i­cally pos­si­ble, the prob­lem­atic part of this would be the tran­si­tional process to a sin­gle ac­cepted value-unit of ex­change.”

Pisani in­sisted that we should not wait for one unit of ac­count that would fa­cil­i­tate ex­change of value for the whole world if we want to move closer to a cash­less so­ci­ety. The an­swer lies in fa­cil­i­tat­ing the ex­change of value in whichever medium and units it is rep­re­sented. a pool of trusted en­ti­ties are be­ing ex­plored: a blockchain im­ple­men­ta­tion by the bank­ing sys­tem as a trusted medium.

Cen­tral Au­thor­ity

Asked if he thinks this cen­tral au­thor­ity will re­main, Pisani said that “as things stand, it seems so, and as things are evolv­ing, I think that we’re go­ing back to it.”

With bit­coin’s value cur­rently go­ing down by the hour, in­vestors may at­tribute this to the fact that it is not be­ing backed by a point of trust. How­ever, had it been backed by an as­set, then its value would be au­to­mat­i­cally sta­bilised by the trust placed in the value of the un­der­ly­ing as­set.

Were one to make a com­par­i­son – what is hap­pen­ing in the Ini­tial Coin Of­fer­ing space as well as the ‘value’ of bit­coin and ether is the same as the herd in­stinct oc­ca­sion­ally ex­pe­ri­enced in cap­i­tal mar­kets and the stock value of com­pa­nies listed on the stock ex­change. The un­der­ly­ing as­set or net as­set value of the listed com­pany, cou­pled with the mon­i­tor­ing in place by the stock ex­change list­ing the re­spec­tive fi­nan­cial in­stru­ment, mit­i­gate the volatil­ity of the trad­ing value.

Within the so called cryp­tocur­rency space, un­less backed by a real world as­set, for as long as the ma­jor economies do not em­bark on reg­u­lat­ing the space, the trad­ing value will con­tinue to suf­fer high volatil­ity driven by spec­u­la­tion and in­vestor in­stinct.

Bit­coin’s value rests on noth­ing but the trust in­vestors place in it, just as the stock value of pub­liclylisted com­pa­nies may change de­pend­ing on how peo­ple per­ceive the com­pany is per­form­ing.

A fast evo­lu­tion

“Un­for­tu­nately, it came a lit­tle too late be­cause what we’re do­ing is re­verse en­gi­neer­ing,” says Pisani.

We are pre­con­di­tioned by the use of money in ma­te­rial de­nom­i­na­tions as it has evolved through­out the ages. The in­stru­ment act­ing as a store of value, unit of ac­count and medium of ex­change can be backed by any as­set car­ry­ing some form of value and should not be re­stricted to minted money. Is­su­ing re­ceipt notes in the form of bank notes for the valu­ables en­trusted with the Medici’s bank was the lat­est tech­nol­ogy in the 14th cen­tury.

In the 21st cen­tury, we are re­sort­ing to dis­trib­uted ledger tech­nol­ogy (blockchain be­ing a type of such tech­nol­ogy) to is­sue dig­i­tal in­stru­ments of pay­ment. The con­cept is anal­o­gous and should fol­low the same model of di­rectly is­su­ing a dig­i­tal re­ceipt for the as­set, rather than digi­tis­ing the bank note which was is­sued as a rep­re­sen­ta­tion of the value of the as­set – as at present, we are re­ceiv­ing valu­ables, is­su­ing pa­per and then con­vert­ing pa­per to dig­i­tal money.

Although side-step­ping this cen­tral au­thor­ity-con­trolled sys­tem, the bit­coin pro­to­col lacks the very qual­ity of money that as­cribes its value. It show­cases a tech­nol­ogy so­lu­tion that does not need a cen­tral point of trust be­cause of a demo­cratic pro­to­col dis­trib­uted on a num­ber of ledgers amongst com­put­ers (nodes), cre­at­ing a medium of ex­change that is ac­cepted by oth­ers.

“The flaw is that it is not backed by an as­set, and typ­i­cally, I want my gram of meat for its weight in salt,” says Pisani.

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