Money Is Broken; Its Future Is Not

CAMERON WINKLEVOSS @winklevoss TYLER WINKLEVOSS @tylerwinklevoss

MONEY IS BROKEN; ITS FUTURE IS NOT

PART I UNDERSTANDING MONEY

Money is the most widely used yet misunderstood technology in the world.

“One reason why money is a mystery to so many is the role of myth or fiction or convention...the money around us, the money that we grow up with, appears the only “real” money to us.”

-Milton Friedman, Money Mischief

The Context: Before money, all trade relied on barter, a system of trade, whereby one individual exchanged his or her goods and services for the goods and services of another (i.e., in-kind transfer or swap).

ORIGINWhy do we have money anyway?

The Problem: What happens if I want what you have, but you don’t want what I have? The answer is, nothing.

Example: I’ll trade you my two bushels of corn for your wheel of cheese.

Trade ProblemWhy do we have money anyway?

Other limitations of barter are portability (difficult to transport 10 oxen to the marketplace); divisibility (cannot

trade half of a horse); measure of value (no common way to measure the value of goods against each other); and

storage (perishables like fruit do not last long).

This trade deadlock is known as the Coincidence of Wants Dilemma, whereby two people must want what

each other have, otherwise a trade will not occur.

The Solution: Invent a common “medium of exchange”, or what we colloquially refer to as money.

The Answer: We have money because money solves a trade problem.

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4 5 6

Scarce

Portable

Divisible

Fungible

Storable

Difficult to Counterfeit

7 8

Durable Verifiable

Widely Acceptable9

MINIMUM VIABLE PRODUCTWhat does money need to be?

WHAT COULD WE USE FOR MONEY IN A PRE-INDUSTRIAL WORLD?

• Money cannot be a gas, otherwise, it would leak out of your piggybank.

•Disqualifies 11 elements including the noble gases.

FAILING FAST

• Money cannot be reactive or corrosive, otherwise, it would spontaneously explode in your hand (ouch!), or rust.

• Disqualifies 38 elements such as pure lithium, which ignites when exposed to air or water, and iron, which rusts.

FAILING FAST

• Money cannot be radioactive, otherwise, it would radiate away or eventually kill you (yikes!).

• Disqualifies 38 elements such as promethium and einsteinium (i.e., lanthanides and actinides).

FAILING FAST

• Money must be rare, but not too rare.

• Disqualifies 26 elements such as copper, which is too abundant and osmium, which only comes to earth via meteorites (i.e., too rare).

FAILING FAST

• We are left with rhodium, palladium, platinum, silver and gold (5 of 8 noble metals).

FAILING FAST

• Rhodium and palladium weren’t discovered until the 1880’s.

FAILING FAST

FAILING FAST

• Platinum’s melting point (3,000 degrees Fahrenheit) would have been too high for pre-industrial furnaces.

• Silver and gold both seem like strong contenders, but...

FAILING FAST

FAILING FAST

Text

• Silver and gold both seem like strong contenders, but...silver tarnishes easily.

•Silver also has too much industrial application (i.e., usefulness outside of being a currency is a bug not a feature), whereas, gold does not; it’s just useless enough.

• This leaves us with gold as our best bet for money in pre-industrial times and silver as our only runner-up.

•Both metals have enjoyed an ~8,000 year first-mover advantage .

•Insight: If we were to replay history over and over again, gold would always emerge as beta money, version 1.0.

FAILING FAST

OPTIMIZATIONWe’ve built better money.

Portability:

Divisibility:

Fungibility:

Storability:

Difficulty to Counterfeit:

Why don’t we use gold for money today?

Good Better Best

Good Better Best

Good Better Best

Good Better Best

Good Better Best

Physical Less Physical Digital

As we’ve made money less physical or “real”, we’ve optimized its parameters.

MONEY MATRIXOriginally hardware-only, today, money is primarily software and starting to become “smart” or programmable.

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Money is a 10,000 year-old technology.

Government-backed paper money (i.e., fiat money) is a 40 year-old iteration on this technology.

Your money is primarily digital, and has been for over 50 years.

Money made of precious metal is no more “real” than money made of paper or computer bits.

Crypto-currencies like bitcoin have unique technological intrinsic value when compared to all previous money technologies.

These unique qualities give crypto-currencies unprecedented money potential.

TAKEAWAYS SO FAR

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Bitcoin is the world’s first-ever programmable money or smart money.

The idea of money being something physical is almost entirely a fiction.

PART II THE PROBLEM WITH MONEY TODAY

THESIS

Money is, and always has been, a technology that facilitates trade.

It does so by helping people exchange value more easily (i.e., reduces friction). But today...

Money is no longer facilitating trade; it’s holding it back!

INTERNET

These protocols work in tandem and can be thought of as the first, middle and last miles of data transfer.

This network, which today we call the Internet, transfers packets of data back and forth using specific communication protocols developed over time.

Since the early 1960’s, technologists have been building the largest data exchange network in the world.

1. Link Layer Puts packets on the network (e.g., Ethernet, DSL, ISDN)

2. Internet Layer Routes packets over the network (e.g., IPv4, IPv6, IPSec)

3. Transport Layer Establishes routes on the network (e.g., TCP, UDP)

4. Application Layer Delivers packets as web pages, email, files, voice, etc. (e.g., HTTP, SMTP, FTP, RTP)

PROTOCOLSThe Internet protocol suite (TCP/IP) is typically divided into four layers:

DILEMMA

This network has become very good at exchanging data, but has no way of exchanging value.

As a result, all components of trade have become truly global, except for money.

The SolutionCreate better money.

The Problem

Good news: The Internet already has a value transfer protocol, it’s called “Bitcoin” with a capital “B”. It also already has a digital asset that can be transferred over this protocol, it’s called “bitcoin” with a lowercase “b”.

MONEY OVER IP

The Internet needs a value transfer protocol (VTP) that can transfer digital value between users. In other words, the Internet needs Internet money!

Better news: A new proposal called pegged sidechains could allow for other value transfer protocols to emerge

and run parallel to the Bitcoin protocol, harnessing its security and growing infrastructure.

Bitcoins would become the global reserve crypto-currency, from which users could jump into and out of

these distinct AppCoins and their protocols depending on their value transfer needs.

Entirely new application-specific coins or AppCoins would traverse these parallel protocols called

sidechains, “backed” or secured by the Bitcoin protocol.

APPCOINS

PART III THE FUTURE OF MONEY

FUTURE OF TRADE

Soon, money will no longer hold trade back; it will begin to propel it

forward!

By allowing cryptographically-proven nano transactions, AppCoins will open new vistas of

trade, previously unimaginable.

Not only will they facilitate trade between humans, they will enable it between machines.

SMART INTERNETComputers will interact intelligently to reduce network congestion and allocate scarce resources accordingly.

A server might require a sender to include EmailCoin in an effort to weed out spam.

A router being flooded by traffic might require DDosCoin in an effort to shut down a denial-of-service attack.

StorageCoin would be rewarded to computers based on how much storage capacity they dedicated to the network.

OpenCoin would be rewarded to developers based on their contributions to open-source projects.

This new ability to transfer value will fundamentally change the neurological pathways of the Internet forever!

AUTONOMOUS AGENTS

In the future, AppCoins will enable the first forms of artificial life and usher in a ‘Second Machine Age’.

Computers, machines and things (e.g., refrigerator), which today cannot open a bank account, will be able to plug into these protocols and behave like rational economic actors.

A new Trade Network will emerge, on which these computers or “autonomous agents” will bid for work and be hired.

Agents will be anything from a self-driving car that picks you up and takes you to the office, to a drone that delivers

you a tube of sunscreen on the beach, which it just purchased from an autonomous kiosk.

On your trip, your self-driving taxi will negotiate with roads for road-space using RoadCoin and pay other self-

driving taxis with SpeedCoin to get out of the way.

Agents and autonomous corporations will be subject to supply and demand and market competition. Ones that

provided poor services would become unprofitable and shut down, or be reformatted and sold-off in a

bankruptcy proceeding to other agent bidders.

Agents who are profitable will be able to purchase more software and hardware in order to spawn children. Soon, a

fleet of agents would arise to form an autonomous corporation led by the parent agent.

AUTONOMOUS AGENTS

TRADE SINGULARITY

A Trade Singularity will be occur, whereby trade between computers, machines and things, will exceed trade between humans.

Uncreative tasks, both blue-collar and white-collar, will become primarily automated.

Long-Term Trend: Humans who are creative will win the day.

Goods and services will become much cheaper and living standards will be much higher.

SMART CONTRACTSAgents can be viewed as public goods because no one will

profit directly from them, but everyone will profit indirectly (e.g., lighthouse, highway). As a result, there will be a funding

dilemma or free-rider problem.

So, how will we fund these public goods? Taxation is too inefficient, but lightweight digital assurance contracts are not.

In the future, entire sectors of public goods will be built out by these digital assurance contracts, which will come to replace a

lot of taxation. Want a better taxi? Create a smart contract!

People will send PledgeCoin to a pre-defined digital escrow address that will only use the funds when a certain target is

met, otherwise, it will return the PledgeCoins to their senders.

IF WE FIX MONEY, THE COMPUTER BITS ARE THE LIMIT

THANK YOU

Money Is Broken; Its Future Is Not

Economy & Finance

Transcript of Money Is Broken; Its Future Is Not