Peer-to-Peer money in a historical context related to Bitcoin

Today, I want to talk about the history of money.

A lot of people talk about the latest things in Bitcoin, but really I want to talk about ancient history.

I want to provide a historical context for money and why Bitcoin is important in that context.

First, little pop quiz for you: if you think of money as technology, as a technological system...

that human civilization has invented, how old is the technology of money?

There are Lots of different answers.

It is still surprising to me when people say it is four hundred or two thousand years old.

in fact, we don't really know how old money is. We have yet to discover an ancient civilization... that didn't have money.

So we know that money is at least as old as civilization. It surprises people to learn that money is older than writing.

When we look at the archaeological discoveries of writing, we find hieroglyphics and cuneiform etc.

In all of these ancient forms of writing, guess what they are writing about? Money.

They are writing ledgers. In all of the ancient writing forms we have found, they are writing about money.

Money is older than writing. Is money older than the wheel?

I don't know, but we do know that wheels were used as money.

They might be as old as wheels; perhaps the first wheel was sold for money or was used as a form of money.

Archaeological sites going back to the Stone Age show the presence of money in the form of shells, feathers and beads. In fact, we can teach primates how to use money.

There have been several studies where they teach monkeys and chimpanzees how to use money.

They are taught that a specific type of stone can be exchanged for bananas.

Then they waited to see what the monkeys and chimps would do with this new information.

They figure that if you beat up another money and take its stones, you can exchange them for bananas.

Surprisingly, the second thing they invent is prostitution. They figure out that sexual favors can be exchanged for stones, which can then be exchanged for bananas.

What does that tell you about the nature of money?

I think the important insight is that money is a form of communication.

At a very basic level, money isn't value. It represents an abstraction of value, a way of communicating value. It is a language.

Therefore, money may be as old as language. The ability to communicate value is as old as language.

In many ways, money has the characteristics of a linguistic construct, so it is a form of communication.

We use money to to express much we value a product, service, or gesture.

We use it as the basis of social interaction. By communicating value to each other, we create social bonds. Money is a very important social construct.

So, money is an ancient technology.

Yet it is one of the technologies that is studied the least from a historical and technology perspective.

Bitcoin represents a new form of doing money.

For a moment, think about how often the technology of money has been transformed.

How many different forms of money have we had?

In communicating value, we exchange things that we consider to be of equal value.

I have a goat. I will take twenty bananas for my goat. That is not really money, as it is a barter transaction but it is the simplest form of communication about value.

Then we started seeing more abstract forms of money, which is the first major technological evolution.

You exchange something that you can't eat a feather, a bead, a colourful string with knots. Maybe it can be used for aesthetic purposes.

Money taking an abstract form is the first major transformational moment when money stopped being about the exchange of goods that had intrinsic value as consumables and became something that referred to value as an abstraction.

One of the most popular forms of these abstractions was precious metals which combined some of the most important characteristics of money:

Hard to find (scarce), Easy to carry (transportable) more so than a giant rock or barrel of feathers, divisible and subdividable, while being
universally valued for aesthetic purposes.

That is the major second transformation in money.

It took hundreds of thousands of years before we saw the introduction of precious metals... with the beginning of the agrarian civilizations in the Fertile Crescent region of the Middle East.

The Babylonians, the Egyptians, the Romans, the Greeks developed these precious metals.

Two major revolutions in the technology of money and then nothing new for a few thousand years.

Then someone came up with the brilliant idea that people could deposit their gold with someone else, someone trustworthy and they can give me a piece of paper that says 'I own this much gold in the vault.'

They could trade the paper instead of the gold because it is easier to carry.

As long as I still trust that my money is in the vault, then I have a new form of money.

With every revolution in money, there is skepticism.

I think this was the moment of the greatest amount of skepticism in human civilization.

For a lot of people, this new invention of money as paper was controversial.

If you think people are freaking out about bitcoin, imagine how much they freaked out when you told them to trade in goods and services with pieces of paper instead of gold.

For a lot of people, this was unthinkable. After all, clearly this paper does not have value.

It took about four hundred years for paper money to become accepted broadly. Trust me, it was a big aberration in society.

Then about 60 years ago, we saw a new form of money as plastic cards.

In fact, the first cards were paper. In the United States, Diners Club was the first to create credit cards which was a form of traveler's check.

When people saw that, they said, "This isn't money. Why don't you give me some paper money?"

They slowly became accepted and that was another big transformation in money.

Now we have Bitcoin, a pretty radical transformation; as radical as the change from precious metals to paper. Perhaps even more radical.

What is Bitcoin? The fundamental issue with describing Bitcoin, if you use references to our existing experience,

which is based on thousands of years of trying to understand what money is in a physical form, how do we explain a form of money that is completely abstract?

As a token that represents acceptance in a network, a network-centric form of money?

But that doesn't even begin to describe what this thing is.

One of the misunderstandings. I notice when I try to describe Bitcoin, is that people think it is simply a payment system and bitcoin is simply a digitization of money.

"It is digital money." Well, that is kind of pointless because we already have digital money.

You used digital money every day long before bitcoin came along. You have bank accounts.

Those bank accounts have digital ledgers. You use bank accounts to send payments electronically.

That is digital money. But bitcoin isn't just digital money. Bitcoin is a transformation of the technology of money.

It is difficult to grasp because it is so different from everything we knew before.

I will take a different stab at it and talk about network architecture for a second.

Bitcoin is not happening in a vacuum. It happened at a moment in history where we are seeing transformations in fundamental social institutions.That transformation is an era of great network-centric systems.

Social institutions were organized around hierarchies: democracy, banking, and education.

Our social interactions were organized around appeal-to-authority in these bureaucratic hierarchies.

Something happened with the invention of the internet. More and more of these social institutions changed from systems that were closed, opaque, unaccountable, hierarchical complex of rules, into platforms.

Systems which have interfaces and APIs to access information, flowing in and out of an organization.

We went from institutions to platforms.

Then we see an even more important transformation from platforms to network protocols. In the change between platforms and protocols.there was often no central appeal to authority.

TCP/IP doesn't work differently in reference to a service provider.

TCP/IP works without context, everywhere in the world. You don't need to sign up for an account to use TCP/IP. You just need to use the language.

Once you transition from a platform to a language, all of these possibilities open up.

Bitcoin is the first network-centric, protocol-based form of money.

It exists without reference to an institutional or platform context. I will return to that in a second. this is a really important point.

We say that bitcoin is peer-to-peer money.

What does that mean? It refers to an architecture used in terms of networking and distributed systems to describe the relationship between participants in a system.

The architecture of Bitcoin is peer-to-peer because every participants in the network speaks in the language of Bitcoin's protocol on an equal level.

There are no "special" Bitcoin nodes such as masternodes, all nodes are the same.

When you send a transaction, every peer treats it the same. It has no other context, besides the information it receives from the network relating to validation of the consensus rules.

Context and state are interesting issues in distributed systems.

If you have an account with Facebook and log in, the state is controlled by Facebook.

You only have a login session. All of the data is held by them. We call that architecture "client-server."

Bitcoin is different. Its architecture is peer-to-peer, just like email or TCP/IP.

Interestingly, we are reluctant to discuss money. It should be shocking that, in almost all countries, money is not part of the educational curriculum.

Five-year-olds have great questions about money, but most parents find it almost impossible to answer.

"What is money, Mommy? How does money work?"

"Why do we not have more of it? Why can't everyone have more of it?"

You don't say, "Suzie, go back to your room and study inflation like a good girl."

"Don't come back until you understand the answer to that question." We just don't discuss money.

It is strange when you use a technology as the foundation of so many aspects of social interaction and yet it is a completely taboo subject.

We all pretend that we don't particularly care about money at least not intrinsically; we have higher goals and aspirations.

We use it every day, but we don't really talk about it.

It is a dirty topic, and I think the architecture has something to do with that perception.

You see, before Bitcoin, the previous iteration of money, when it was issued in exchange for precious metals, stored in a vault, that represented a form of debt.

That is an important concept to understand, because it colors our discussion of money.

How many People have money in a bank?

Do you store physical money in a safe deposit box?
Maybe then you could say you have money in the bank.

A few people say that, okay. The rest of you have actually loaned your money to a bank.

For the privilege of loaning your money to the bank, you are paid the amazing sum of 0.00001% interest per year.

Your bank will take your money, turn around, and loan it to the people standing next to you for 24.99%.

This is like a client-server relationship because that money only exists as a form of debt on a ledger stored by a server that you do not control.

You are simply a client and have no control over that at all.

You don't even have basic interfaces to that money unless mediated by the server. That is what a client-server architecture does.

We have another term in distributed systems that describes a particular form of client-server architecture where the secondary party only has a weak copy that isn't really meaningful.

We call that a master-slave architecture.

If you think of the previous iteration of money as a master-slave architecture then you must ask an uncomfortable question
about that system: who is the slave?

In a system of debt, one of the two parties is always the slave. You are the client, you are not the server.

The server doesn't serve you, they serve themselves. They are the master in the architecture of money.

That is the architecture of money we live in, that we use in our civilization, where you have no control, where every interaction is mediated by a third party that has absolute control over that money.

Today, if you go to the ATM and insert your card, the bank may decide to give you your money back.

But one day -- like the people of Cyprus, Greece, Venezuela, Argentina, Bolivia, Brazil, a whole list of countries over the last several decades and centuries
you will go to the bank and discover that the bank does not want to give you your money.

They don't need to. That is the essence of a master-slave relationship. Bitcoin is fundamentally different.

In Bitcoin, you don't owe anyone anything and no one owes you anything.

It is not a system based on debt. It is a system based on the ownership of an abstract token. Absolute ownership.

We have an expression in the United States, which is, "Possession is nine-tenths of the law."

Have you heard that expression?

In Bitcoin, possession is ten-tenths of the law.

If you control the keys, it is your bitcoin.
If you don't control the keys, it is not your bitcoin.

If you think you own bitcoin but don't control the keys, you are back to a master-slave relationship with a bank.

Bitcoin represents a fundamental transformation of money, an invention...

that radically changes one of the oldest technologies we have in human civilization.

that disrupts the architecture of money into one where every participant is equal,

where a transaction has no state or context other than obeying the consensus rules of the network.

where your money is yours and you control it absolutely through the application of digital signatures.

No one can censor it, no one can seize it, no one can freeze it, no one can tell you what to do.

It is a system of money that is simultaneously transnational and borderless.

We never really had a system of money like that, where money can be transmitted...

at the speed of light to anyone in the world, who can participate with a device as simple as a feature phone.

Bitcoin represents a technological innovation in money that is terrifying to a lot of people.

They will tell you that they are very worried about criminals using Bitcoin but the truth is, they are far more terrified that the rest of us will.

Thank You!