your future coffee could be bought using Amazon stock
Having Money Doesn’t Mean You Can Use it
How we store value and pay for things has evolved over time. Today, cash represents the most liquid form of value and is, thus, the mode of transacting with the lowest fees. Case in point, if you have a five-dollar bill in your pocket and are trying to pay for coffee that cost five dollars, you can just hand the person across the counter your five-dollar bill and go about your day. No transaction fee, no future obligations, just a clean transaction between two people.
However, if you pulled out your debit card to pay, the situation changes. You would swipe your card and something new would happen — along with the transfer of value from your checking account i.e., along with the money that is withdrawn from the account, the merchant will need to pay a transaction fee.
What is the difference between the five dollars in your pocket and the five dollars in your checking account? They are both yours, and they are both worth exactly five dollars, right? Well, not exactly.
The difference is that there is a cost to accessing the five dollars in your checking account that does not exist with the five dollars in your pocket. There are other ways you could pay for this coffee, personal check, certified check, barter, credit card, but the primary point here is that ownership of value and the ability to use that value to pay for things is different. Just because I have access to value does not mean I can pay for anything.
Let’s expand this example to stocks. Stocks represent equity in companies, and by holding stocks individuals share in the growth or losses of a company. Stocks are traded every day on exchanges across the world and are viewed as liquid assets. In fact, stocks are considered the second most liquid asset a person can have outside of cash.
Now, what does it mean to be the second most liquid? Could you pay for that five-dollar coffee with your stock? You could, it would just take a long time…and you would need to find a very patient 24-hour coffee shop, which you might actually be able to find in NYC where I am currently residing.
But how would this work, practically speaking? Well, imagine you are standing in a coffee shop and all you have to your name is $100,000 in Amazon stock. On paper, you are doing pretty well. But not so in this store:
- You tell the barista, “one second, while I get some of my money.” First, you would need to wait until markets were open and then put in a sell order for some of your stock using your brokerage account. Since you are trying to buy a $5 coffee, just to be safe, you sell $15 worth of stock because you know there are some fees coming your way.
- Once the trade goes through, it will take 3 days for you to have access to that money on your brokerage account.
- After the money is in your brokerage account, you will need to send that money to your checking account. This can take another 3 days via ACH transfer and might involve another fee. Fees are killer.
- Now, after potentially six days of waiting around in this coffee shop, you should be able to swipe your card and pay for your coffee.
As the above demonstrates, in this case, you are wealthy in Amazon stock but you aren’t liquid.
This sounds like a terrible experience. However, my hope is that, while it sounds terrible, you can see that all the issues here have solvable problems. If markets were open 24/7, the settling of trades could happen faster. And if the transferring of assets could cost less and happen instantaneously, one could, in theory, pay for coffee with Amazon stock.
And the truth is, we are headed for a new economy. In fact, we are already creating this new economy — one where value ownership and liquidity disappear. We are seeing this, to some extent, with tokens.
Tomorrow’s Solutions to Today’s Problems
The important thing to note is that bitcoin was just the first in a new category of assets. A friend of mine recently wrote a post titled “Bitcoin is a Platypus,” which I highly recommend. It outlines how blockchain does not fit into any of our traditional systems or categories. Rather, it is a “category creator.” However, people are trying to force blockchain and other similar technologies into existing buckets and, long term, I think this will look ridiculous.
2017 will be the year that blockchain became main steam, but it will also be the year of misunderstanding and mistakes. I think people will laugh when they look back at the ICO craze and the various regulations that have attempted to put this new technology into a familiar box when, in fact, this technology is going to completely change the box.
Need an example? Imagine a world where you could have your value stored in a number of different tokens based on your own preferences, and then use that value to pay for anything else. Here’s how this would work.
- I have a future payment platform called Y-Not Payments. On this platform, I have Amazon tokens, Tesla tokens, Bitcoin, USD, LTC, and ETH. I go out to dinner with my friend Alex, and he covers the bill. I now owe him $50 USD. Instead of sending him USD, I feel like I would like to own less BTC, and so I send him $50 worth of BTC.
- Alex also uses Y-Not Payments, and he has his preferences set to convert all incoming payments into ETH. My $50 BTC is automatically traded for $50 ETH.
- That $50 ETH hits Alex’s wallet, he thanks me for my expeditious payment, and we both go about our day.
This future is coming, and there is no reason why, in this future, we would even need to use the same payment interface.
Again, the separation of value and liquidity is going to largely disappear and that cryptographic tokens and smart contracts will fundamentally change the way we all operate; however, there are some critical steps between then and now.
As of right now, this future as I have described is not possible. One of the primary barriers to that future is that transaction speeds are too slow for it to work. Another is that transaction costs are too high. Ethereum, one of the most prominent blockchains, is currently experiencing both of these major issues as a result of a single apps popularity, crypto kitties.
We are still in the early chapters of the blockchain story, and there are many innovations still to come. Almost certainly, what we think we know today will be different from what we know in the future.
A New Economy?
With this in mind, I have spent a lot of time exploring new projects, particularly ones that might solve some of these problems. One of those projects is a technology called Hashgraph. Hashgraph is a distributed consensus technology that might eliminate some of the key issues with current blockchains, such as transaction speeds and costs, through its innovative gossip about gossip network involving digital voting. That said, this is a pretty deep rabbit hole, so if you want to go down it, feel free to follow the links. But in short, it is important to highlight them because they extend the conversation beyond blockchain and demonstrate that the future may involve other forms of consensus algorithms.
Right now, a lot of the conversation circles around how to improve existing blockchains and, as is often the case when you are too close to a problem, it is hard to see solutions that exist elsewhere. This reminds me of a familiar (but most likely false) historical account from the Ford Motor Company. Henry Ford said that if he had asked people what they wanted, the response would have been faster horses. Instead, he built the car. Right now people are asking for faster blockchains.
The TL:DR of all this is the following: In the future, the separation of value and liquidity will disappear with cryptographic tokens and smart contracts. While blockchain will certainly play a role in that future, it is almost certainly not the whole story. Given existing problems with how it operates alongside today’s systems, it can’t be.
Disclaimer: This article has been updated to summarize the content found in the article “Bitcoin Is A Platypus.” Addittionally, Futurism Agency is exploring a financial relationship with Hashgraph. Hasgraph had no editorial review privileges on this article.