Before Babylon, Beyond Bitcoin: From Money that We Understand to Money that Understands Us

by David Birch, Andrew Haldane (Foreword), Brett King (Foreword)

Technology is changing it has been transformed from physical objects to intangible information. With the arrival of smart cards, mobile phones and Bitcoin it has become easier than ever to create new forms of money. Crucially, money is also inextricably connected with our identities. Your card or phone is a security device that can identify you – and link information about you to your money. To see where these developments might be taking us, David Birch looks back over the history of money, spanning thousands of years. He sees in the past, both recent and ancient, evidence for several possible futures. Looking further back to a world before cash and central banks, there were multiple ‘currencies’ operating at the level of communities, and the use of barter for transactions. Perhaps technology will take us back to the future, a future that began back in 1971, when money became a claim backed by reputation rather than by physical commodities of any kind. Since then, money has been bits. The author shows that these phenomena are not only possible in the future, but already upon us. We may well want to make transactions in Tesco points, Air Miles, Manchester United pounds, Microsoft dollars, Islamic e-gold or Cornish e-tin. The use of cash is already in decline, and is certain to vanish from polite society. The newest technologies will take money back to its a substitute for memory, a record of mutual debt obligations within multiple overlapping communities. This time though, money will be smart. It will be money that reflects the values of the communities that produced it. Future money will know where it has been, who has been using it and what they have been using it for.

Genres: Economics, Technology, Business, Nonfiction

327 pages, Kindle Edition

Published June 15, 2017

Reviews

[Nilufar Khaydarova · Rating 5 out of 5]

I think it’s a great book (it was recommended by my friend).

The research and content is amazing, I have learned a lot and had so many mindset shifts about money that made me realize how much I need to learn about money.

It also gives solid arguments on blockchain and Bitcoins and draws a clear line between different technological innovations we have in monetary world.

One problem I would say that the beginning chapters on history of money is not clear, badly organized, it would be better to explain history chronologically, not by concepts.

[Zhi Wei Lee · Rating 4 out of 5]

While I have some basic understanding of the history of money, I consider myself a newcomer to the specific domain of payments. This book is a good primer that combines the two - covering not just the history of money and payments, but also where we are today and what the future might look like. Birch's style of writing is enjoyable to read, especially if you (like me) love dry wit and British humour in general. I would strongly recommend this book to anyone who's trying to keep up with the developments in the payments space, although I would take his recommendations with a pinch of salt. In particular, when he starts talking about community-based currencies (see below) - it is an exciting idea, but unfortunately not very well-argued or well-articulated in my opinion. At times, I wasn't sure if he was stating it as an aspiration or a prediction, or some garbled version of both.

I have distilled what I felt were Birch’s three key insights, but do keep in mind that the book covers a much wider range of material (e.g. some illustrations of developments in selected countries, Birch's framework for thinking about electronic payments in general, as well as his consequential recommendations for public policy).

One, societies should become cashless, given the significant private and social costs of using cash. The arguments here are nothing new (e.g. cash is costly to produce / is a common vehicle for the shadow economy / is the “enemy of the poor”)

Two, mobile technology will be the primary driver towards cashlessness. There are several considerations for this - greater security than chip-and-PIN via in-app “tokenization”; greater convenience, given that mobile phone ownership offers greater ubiquity than other alternatives (e.g. POS terminals, bank branches); and the Formation of “social identities” via linkages with other mobile apps (e.g. Facebook, Linkedin, Twitter), thereby creating the trust that ultimately underpins money and payments. Birch notes that “identities and credentials are easy to create and destroy. Reputations are much harder to subvert since they depend not on what anyone thinks but what everyone thinks.”

Three, the future of money is increasingly decoupled from the state and banks. Birch identifies five issuers of money in the future: (i) central bank (fiat money, e.g. digital currencies – details in Appendix); (ii) commercial banks (bank money); (iii) companies (private money, redeemable against products/ services); (iv) Cryptography – no issuer and unregulated; and (v) Communities – “local” money, but the boundaries of “locality” may be defined physically/geographically (e.g. cities) or virtually (e.g. based on shared values, affinities or interests). The most “radical” idea here is community-based currency – Birch believes that this is enabled via “shared ledgers and ‘smart contracts’ […] it might well mean a type of money that won’t allow you to use it unless you have a track record of upholding its values”. Key to this will be greater integration between payments data and social network data. He also believes that the technology to enable near-frictionless exchange between different “community-based” currencies (similar with foreign exchange markets) is already within our grasp.

In respect of cryptocurrency, Birch is a sceptic that it will become the mainstream, even if the value of such "currencies" stabilises. He argues that what customers want is not anonymity, but strengthened privacy. Total anonymity would mean no control over the currency, which may not be acceptable to society as a whole (certainly not governments) – this would be challenging for law enforcement and business (e.g. anonymity means that businesses would be unable to leverage big data to tailor solutions to specific customers, such as via loyalty schemes).

[Eswar · Rating 4 out of 5]

Great textbook on the history of money, how we used to live before currency, and how an unpegged sovereign issued currency is really a recent phenomena. The book also foreshadows the future of community-based currency and the author is a staunch advocate of a cash-less future. Although many of us believe that sovereign issued money is the norm, life with currency unpegged from gold underlying its value is only 50 years old, after Nixon removed the weighting of gold from dollar. Now we live with dollar valued by fiat, solely our collective belief in it. No wonder USA is the mecca of marketing. Without reading this book, I wouldn't have known that in our short time as modern civilization on this planet, that fiat currency has just been a fleeting instant (from 1971).

Birch identifies key criteria for future currency and cash substitutes that seem fair. Alas policymakers get swayed by the money that literally only serves an insignificant fraction of humanity. Only for them, we hold cash. And it helps grease criminal activities and push away tax collection.

What was further illuminating was Birch's commentary that innovation in money was propelled by telecommunication companies rather than banks. Banks actually hindered communication. Western Union sped up cross-country payments due to adoption of telex systems. That was their moat and competitive advantage. Banks and financial institutions just charge fees, and don't innovate their business models, so are just waiting to be disrupted.

I agree with Birch's conclusion that communities will be the future issuer of currency (or are now already). Communities are pools of trust with shared identity and relationships that are a barrier to entry. However, like Bitcoin, if only the OGs get wealthier due to influx of newbies, then it's only a pyramid scheme. How do you manage supply and create a strong community of like-minded individuals? Cryptocurrency and blockchain with hardware encrypted tokens ratified by community trust seems the way forward. Identity and relationships are your capital.

Your future wealth portfolio may be weighted by your future electricity consumption credits, parking spot allocation, air/space mileage, and your reputation (credit). It's not so unforeseeable in a world where executive compensation is based on (1) cash, (2) healthcare, (3) bonus, (4) carried interest or equity stake, (5) children's tuition, (6) travel per diem, (7) monetizable holidays, and (8) other perquisites.

[Rutger · Rating 3 out of 5]

I liked the book.

Birch is an interesting and independent thinker with a wealth of experience in the financial sector. This book is his honest and sincere attempt to get to the bottom of what money means for society. Birch really did his homework and has gone through real-life tests of his ideas. His self-analysis of why Mondex failed was interesting to me. Birch really tries to reflect on past failures in order to figure out what people really want/need; and not give people something they don't want/need.

Also, Birch is an opponent of cash, but like the regular opponents of cash (terrorism! drugs! bad!), Birch gives some strong arguments. I disagree with these arguments, but, at least, Birch is having an intellectual case here. Birch also seems to pooh-pooh the pro-privacy argument for cash, because people seem not to care as much for privacy as advertised. He's probably right on the money here (pun intended.)

A few points of critique, I didn't think the book was well-ordered, and I saw a bit too many "personal" reflections for my taste.

I recommend this book, because it's complete devoid of marketing bullshit and buzzwords. Birch simply gave a summary of career lessons and honest assessments. He sure isn't impressed by bitcoin, which was kind of refreshing, since that's all the rage at the moment.

[Tom · Rating 4 out of 5]

A solid, but brief overview of the history of money and payments. I would recommend this book to someone interested in learning about the future of payments, but not to the layman. While he mixes in some wit, the subject is pretty dry, even for me.

He does a nice job of summarizing the state of things around the world in the appendix as well.

[Paul · Rating 1 out of 5]

The book is basically a brain dump of bits of content that don't fit together very well. It contains some nice information nuggets and one liners, but that's about it. The important bits of the content would have made a nice medium-length blog post, rather than being part of a 200 page book.

On the bright side, I didn't pay for it.

[Cez · Rating 4 out of 5]

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[Khoa · Rating 5 out of 5]

Good to know... NOT

[Eddy D. Sanchez · Rating 3 out of 5]

Pensaba encontrar un poco mas de contenido sobre la evolucion del dinero, pero tiene mucha historia y numeros que confunden, tampoco es profundo cuando aborda las cryptos.