The Power and the Limits of Algorithms over the Concept of Money
If an algorithm can generate money out of nothing, then a counter-algorithm can generate nothing out of money. Yet, only algorithms can elevate money to motivate, activate, and steer humanity in the digital age.
We live in cyber space and cyber space is composed of data plus algorithms. Where we live we need money, and hence money must be a mix of data and algorithms. That is the one-line summary of why, as we migrate into the new world of cyber, we have to redefine money to fit our needs. Alas, data can be falsified, and algorithms can be outsmarted — and that is the one-line summary for why as convenient and enticing the panacea offered by crypto currencies is, this new technology must be anchored on something outside its math.
Let me start with the last point. The fundamental principle of crypto currency is the idea that mathematical complexity can be trusted. It is akin to the idea that when we drive over a bridge we trust the mathematics that applied Newton mechanics to the structure. If we can trust bridge mathematics why can’t we trust money mathematics?
There is a big difference between the two: nature, physics are not trying to cheat us, or harm us. But the mathematics that secures our money is subject to fierce attack from those who try to use smarts against us. Money generated by smart mathematicians will be secure against dumber mathematicians, alas, insecure against smarter mathemticians. This simple underlying fact is mysteriously missing from the volumes of literature that explain the exciting new phenomenon — crypto currency. This is currency that will vanish in a jiffy once its generating algorithm is outsmarted. You can play with bitcoin if you wish and bet against the possibility that its hash and elliptic curve algorithms will be compromised — that’s fine, enjoy yourself. But when we discuss currency on a global stable basis, such vulnerability towards a smarter mathematician is unacceptable.
As advanced as we really are, and as more advanced as we intend soon to be, we must anchor digital money on non-digital foundation. Money must be built from the most durable, most reliable, most trustworthy ingredient one may think of. Gold was chosen by our ancestors as the medium of money because gold did not interact, did not dissolve, did not combine with anything, as much as our ancestors knew. Similarly as long as humanity is expressed biologically the most unreplaceable ingredients are things we eat, wear, and build from — or their political representation — fiat currency. Digital money, to be global, reliable, versatile, and broadly useful must be a digital expression of fiat currency.
Are we already there? 90% of world fiat currency is not minted as metal coins, nor as paper banknotes. It is expressed digitally. True enough, only that one finds a subtle difference. Coins or banknotes have a denominated value, but also — and that is critical — an identity. Their unique physical embodiment makes one dollar bill distinguishable from all other dollar bills in the universe. By contrast, digital money today is a number only, no identity — big difference.
While central bankers hunker down, terrified by the attack on their institutions, coming from an algorithmically generated money, they do so out of misunderstanding. Algorithmically generated money is of no risk to global financial reality. Any such money is vulnerable to a smarter algorithm, which if not unleashed today, will be unleashed tomorrow. Algorithmic money can not survive an attack by a smarter algorithm more than an agile impala can outrun a faster cheetah. And until that math-death, algorithmically generated money moves about unexpectedly, makes early traders rich, and most other — nervous. Aware of the vicissitudes of crypto money many astute observers believe that with time algorithmic currency will stabilize. It won’t, because what is generated by mathematics can be killed by mathematics.
Alas, once the generation process is placed outside the mathematical realm then the generated money is perfectly carried away, stored, paid, moved by algorithmic cryptography. And here the sky is the limit. Crypto-carried money can be fit to serve humanity in ways not yet envisioned. Money can be tethered to intended pupose (see my book “Tethered Money”); money can be secured to its rightful owner; money can be handled with controlled anonymity, with socially benefitting transparency. Crypto-carried money can be handled by the Internet of Things, by robots and human-replacing artificial intelligence — no friction, no fraud, no abuse. Such money handling algorithms can also be outsmrted, of course, but when this happens they can be quickly replaced limiting any resulting damage. By contrast, if the generating algorithm of bitcoin or Ethereum are compromised the entire treasure of these currencies evaporates at an instant — no recovery.
Crypto carried money will fit seamlessly into our cyber life, motivate us, move us, steer us, and allow us to express our priorities and values all through the sophisticated handling of money flow, which digital money is the best at. In fact, any commodity and transactional valuable may serve as the object of digitization and monetization — crypto handled. It’s a big challenge to human imagination,
By moving away from over ambitious stance of replacing fiat currency and embracing instead the notion of framing and carrying digitized fiat currency to perfectly tailor to our social demand, we would leverage the new cyber technology to improve life on earth. What are we waiting for?