Financial Technologies And The Human History Of Blockchain

Our world is entering a dynamic era of financial upheaval that is both evolutionary and revolutionary. We are increasingly building out our computer-supported systems of commerce to include features so transformative, our fiscal psychology will almost certainly have to evolve alongside our systems of exchange. Smart physical environments, virtual reality, quantum computing (including faster than light communication), artificial intelligence, the internet of things, global decentralized computers; the technologies being developed today all share massive disruptive potential. Their intersection in the relatively near future will undoubtedly have a compounding effect on our world. As the rate of technological development continues to increase exponentially, our understanding of history becomes paramount to safeguarding the implementation of tomorrow’s technology.

Blockchains are among these disruptive technologies, and have been made famous by their foundational role in supporting cryptocurrencies. Blockchains have been called “trust machines” because of the incorruptible way they store and transmit data. They have re-energized the long-standing debate regarding the nature of trust itself, specifically how people bestow trust in their technologies.

Trust in computational infrastructures, information sources, and mediating agents is suddenly at a premium. Building trust is more complicated than developing protocols or architectures, however. The advantages of new technologies cannot be realized if people are unaware of their respective implications or untrusting of their autonomous capacities. In many cases, technological security measures are not enough to win people over, nor is human knowledgeability or expertise. The problem lies in how to build and maintain sufficient levels of user trust long enough to ensure that the technology at hand is given enough time to be adopted by enough people. More than invention or innovation, it is rather the diffusion of technology over time into our civilization that creates the foothold needed to adopt it ubiquitously.

Blockchain technology has started this journey into our lives. Although it has several attributes that are advantageous to our modern global society, its greatest hope for truly massive adoption may come from its position as the underpinning architecture for cryptocurrencies. Although cryptocurrencies currently exist on the fringes of our modern financial system, there are increasing levels of interest in them shown by countries and companies alike, both large and small. Indeed, blockchain technology has been demonstrating its value through technical credibility more and more, as evidenced by the tremendous growth of crypto ecosystems. There are many who believe this is the beginning of a technology explosion that is starting in finance and will culminate some years from now in the technological “singularity.” If finance is going to be the proving ground for blockchain, the technology must demonstrate its utility constantly in order to leap-frog into other industries. This is a battle that, so far, blockchain has been winning. In order to understand why, it is necessary to appreciate how blockchain is the natural and logical outcome of human economic technology. 

Human Financial Technology

Although the story of money starts in antiquity, one of the most famous examples of monetary technology comes from a Micronesian culture in the early 1900s. These people were called the Yapese and they lived on the islands of Yap in the Philippine Sea. Economists like Milton Friedman are drawn to studying this island culture’s economic technology because it helps us understand the theory of what money actually is. Moreover, the Yapese had a form of money that provides a unique insight into why blockchain technology, and by extension cryptocurrencies, is a natural progression of human financial technology.

The Yapese used carved limestone disks, called Rai Stones, as ledgers to exchange value. Rai Stones can be large and heavy – some are 12 feet across and weigh 4 tons. As such, the Yapese couldn’t carry them around and trade them the way people exchange fiat today. The Yapese simply kept track of who owned what part of the large, stationary, Rai Stones. Dr. Scott Fitzpatrick, an archaeologist and Associate Director of the Museum of Natural and Cultural History at the University of Oregon, specializes in island and coastal region archaeology, and has visited Yap to study the Yapese and the Rai Stones. Dr. Fitzpatrick told ETHNews:

“The stone money of Yap [was used to] exchange valuables. Because they were so challenging to move (and relatively fragile), usually ownership changed hands instead of the stone being physically moved. Sometimes, owners of a Rai would not live close to the stone, but the village chief and community members would always know who it belonged to. If someone tried to remove it or vandalize it in some way, they would be punished (sometimes, severely). Trust was reciprocal, and because ownership (and the pedigree of each stone) was passed down orally, not in a written ledger, the Yapese would maintain good communication between members of a clan or village to ensure that there were no questions about who owned what.”

Connections between Rai and cryptocurrencies running on blockchains provide historical insight into how people use economic systems. Ingredients like trust, public ledgers, facilitated communication, and the punishment of bad actors are present in both, adding to the idea that human financial technologies, no matter how technically complex, all share baseline commonalities. “For the Yapese (and many other traditional societies in the Pacific and elsewhere),” said Fitzpatrick, “the passing down of oral traditions through chanting, songs, rituals, and open communication is somewhat akin to blockchain technology in that ownership of Rai, in this case, would be uniformly known across a community, and once ownership changed hands, that information would be distributed widely across communities to try and prevent conflict of ownership.” 

Moreover, according to Yapese history, a newly minted Rai Stone once fell into the sea while being transported from its quarrying site to an alternate island of Yap. While throwing modern fiat into the sea might lead to its destruction or loss, for the Yapese, the Rai Stone ledger at the bottom of the ocean still counted. Dr. Bill Maurer, Dean of the University of California, Irvine School of Social Sciences and Founder of the Institute for Money, Technology, and Financial Inclusion, told ETHNews why the Rai stone at the bottom of the sea was still valued by the Yapese:

“In that case [of the Rai stones] the distributed ledger is really in people's brains, and Rai Stones are the things that call them to mind ... It’s really a way of remembering and reconciling credits and debts between kin and families and individuals. So the ledger is in [the Yapese’s] brains but [they] need a little help to remind [themselves] of what it is and that’s what that object does. When people see the Rai Stone, it’s this big impressive thing, it’s not that they think it’s worth ‘x’ whatever, it’s more that it provides them the occasion to tell the stories of who owes what to whom … In even simpler societies, what they often did was use objects that could serve as a memory device for them. That then would signify all those relationships.”

The story of the Yapese illustrates the most common factor of human money: its worthlessness. There is nothing inherently valuable about a stone or a bank note. They are stores of value because that’s what we have chosen to believe about them. Follow this logic far enough and money starts to look less like a tangible currency and more of a way of valuing the exchanges between people. Money is a way of telling stories and, as such, it is humanity’s greatest collective fiction; it’s a story we are constantly telling to each other. Dr. Maurer elaborated about this fiction of money for ETHNews: “Economists talk about there being a hierarchy of money or a pyramid of money where people can make any kind of money they want. I can make all sorts of IOUs, we can make up our own scrip currency, I can use airline miles and start converting them into food at the airport.”  

The Greatest Story Ever Told - Rewritten

Over the past two decades, humanity has begun to use digital money. Today, many people get paid via direct deposit; bills and taxes are paid online using electronic transfers; and every month, portions of earnings can be automatically deducted and invested into mutual funds for retirement accounts. In all of these cases, it is not fiat currency that is changing hands. Rather, these processes are facilitated by the changing of 1s and 0s on computers. Each time electronic transfers happen, the value being exchanged has to be underwritten by large financial institutions to guarantee the 1s and 0s. These institutions create liability for themselves when they do this, and they are all in different countries with different laws and regulations. That’s why transferring money across borders is expensive and slow. The gatekeeper institutions of the world are holding captive the very ability for people to freely exchange and interact financially with one another. This is a problem that blockchain technology and cryptocurrency is solving, as revolutionary technologies. Dr. Maurer continued: 

“I think [blockchain] is revolutionary in the way that double entry bookkeeping was revolutionary. Double entry bookkeeping in the Renaissance allowed people to track expenses and flows of income that actually help predict things like profit. It was a new way to plan and calculate risk. This is very simplistic, but what you get is the rise of capitalism. [Ledgers] are a very helpful tool for doing the things that make capitalism go.”

By incorporating the timeless features of human money, blockchains and the cryptocurrencies they support are continuing to evolve digitized forms of payment, pushing human economic systems further into the future. The adoption of these new technologies will be assisted by their trusted utility as continuing forms of the same story, passed down by every generation to the next, improving upon how to build, store, and exchange value. Dr. Maurer concluded, “The coin is one of the oldest technologies in continuous use in all of human history, except maybe fire and grinding stones. Technologies associated with payment are unbelievably durable through time and space and history, once they get going.”