Security Notes: The Revolution in Digital Money Tech

Central banks do something no one else can: they arbitrarily computer-click digital statements, and get people to regard them as tradeable instruments of value. They do so on the basis of a vague claim that this fiat currency reflects the wealth of the nation. It is not entirely a baseless statement, but it is not very precise.

The unrecognized revolution in digital-money technology is that the roads, the facilities, the operations, the corporations, the physical and organizational wealth of the country as a whole, can now be monetized with precision, and hence with stability. This will deny central banks the power to swing the value of the national currency for political purposes—which is the central accusation levied against them.

Monetizing technologies like BitMint enables a shopping-center builder to raise money against digital-equity claim checks, which transact within the community anonymously and without friction. Members of the community witness the shopping center as it is being built and agree to accept its equity claim checks as money because they trust their eyes. They see this center is strategically located and will be profitable.

Next door, a wind farm is built, which is also similarly monetized, and a hospital, a car dealership, an insurance company, and so on. These asset-fraction claim checks have a fiat-currency value, but this value is for comparative purposes only, to cast one asset against the other. A public ledger runs a current exchange table. People who are getting paid with an office-building equity digital claim check will instantly switch them to another asset they trust more. The dynamics of this switching will update the relative values of the monetized assets to reflect the judgment of the people.

A second layer of digital-money claim checks will be constructed as a cocktail of primary assets. Such cocktails will be more stable than their building blocks, and will give rise to a third layer, and on it goes. Eventually, people will have tradable digital claim checks representing the wealth of the nation—the ultimate monetary reference for national trade.

And how does the central bank fit into this equation? In a very narrow way. Suppose the U.S. Federal Reserve decides to help the government in power by printing oodles of dollars to fund a popular social program. The ensuing inflation will increase the price of, say, a parking-garage equity slice from $100 to $140. But at the same time, a certain equity slice of a shipping company would also increase from $2,000 to $2,800. The dollar values jump, but the ratio of the parking-garage equity slice to the shipping-company equity slice remains the same—for as long as the trading public maintains its view of the relative values of the traded assets.

Come to think of it, this is what the stock market is all about. It’s a repository of the wealth of the nation, a summary of what is there for the community to share. Modern digital-money technology simply pushes the stock-market concept a step further, rendering the shared wealth into daily payable instruments of value for airline tickets, for groceries, for a cup of coffee, and so on. Digital monetization will allow any asset holder to sell slices of his or her property as long as the assets are listed on a universal public-exchange ledger.

Is this what the future will look like? It is a possibility. But we have only begun to think about the long-term implications of this historic transformation of money from matter to cyber. One thing is certain: It will be an earth-shaking event.

—Gideon Samid gideon@bitmint.com