Cover photo

Money With an API

In the early stages of societal development, the first communities began to understand the need for a standardised form of exchange to facilitate trade and commerce.

Thag have Y and want X, Thog have X and want Y, etc.

As a result, they adopted physical items that could be used as a form of currency. These items were carefully chosen based on a few essential characteristics. They had to be scarce to maintain their value, durable to withstand repeated transactions, divisible to enable a fair and accurate exchange, and portable for convenience in trading.

Many objects were employed as money, varying from place to place and culture to culture. This included livestock and grain, which were prevalent and valuable resources in many agricultural societies. Precious metals, particularly gold and silver, were also commonly used due to their rarity and desirability. In some societies, beads and other minor artefacts were also used as a form of currency due to their portability and divisibility.

These early tradable and barterable goods were inherently inefficient despite their wide use. Each transaction required a double coincidence of wants, where each party had what the other desired. And it led to complex trade negotiations and made it difficult to determine fair exchange rates. The physical nature of these goods made them cumbersome to carry and susceptible to theft or damage. Over time, it became clear that a more efficient trade system was needed.

The concept of money emerged as a technological solution to the inefficiencies of barter.

Metallic coins represented an advancement, standardising value into portable pieces. But the use of physical money came with its own set of challenges. One of the main issues was the need for stringent security measures to prevent theft. This need for security was not just a matter of protecting individual wealth—it was hard to maintain the integrity and stability of the overall monetary system. Institutions had to be established to manage the production and distribution of physical money, which was a complex and costly process.

The physical nature of money imposed limits on its usability. Dividing physical money into smaller units without degrading its value was complex, making transactions involving small amounts cumbersome. Transferring money over long distances was another tough ask—it was time-consuming and risky due to potential loss or theft.

Users of early physical money had difficulty understanding and communicating abstract values. In a barter system, the value of goods and services could be directly negotiated between the parties involved. But with physical money, the value of a token was fixed. It could not be easily adjusted to reflect fluctuations in the value of goods and services—pricing and valuing transactions were more complex and less accurate.

The development of banks enabled an "on paper" evolution, with money taking the form of ledger entries and paper claims on deposits. Banks issued notes backed, in theory, by gold in their vaults, making money easier to secure, transfer over distances, and transact with at scale. However, it concentrated control across private institutions and required trusting their record-keeping and redemption promises.

Today's predominant form of money is fiat currency, which has a value decreed and sustained by government authority. Fiat money is inherently a digital construct of account balances rather than tokens with intrinsic value. Its digital nature has enabled advances like electronic fund transfers, credit cards, and mobile banking. The centralised management of money as bank database entries persists, creating chokepoints and limiting innovation.

The final development in the progression of money is the rise of Money as Software - digital money supported by software protocols, cryptography, and decentralisation. Cryptocurrencies combine the features of software, digital assets, and programmable APIs, fostering an open financial system that doesn't require permission to innovate. This transformation of money into usable software has the potential to alter economic structures and grant individuals more access through democratisation.

Money as Software

Unlike previous forms, cryptocurrencies have no physical backing or institutional issuer. Their value derives purely from the usefulness of the software itself - its ability to securely record and transfer ownership. Upgrades to software that enhances privacy or scalability can increase the utility and value of the cryptocurrency. Software codifies the rules and politics around money in transparent lines of code, while its digital nature provides global accessibility.

Cryptocurrencies enable "programmable money" - not just as static data but dynamic software that can respond to conditions and execute complex logic through code. Ethereum extended Bitcoin's programmability by adding a Turing-complete scripting language that supports "smart contracts" - transactions and agreements embodied entirely in code and executed automatically.

This programmability turns money into a flexible API-enabled building block. Developers can use crypto APIs to build applications that integrate money natively into their functionality. Traditionally, integrating payments into apps requires complex integrations with arcane banking APIs and financial networks. Cryptocurrency APIs present a more straightforward paradigm: money as data that can be queried, sent, received, and scripted - like any other API.

A software API can automatically dispatch cryptocurrency payments when certain conditions are met, like transferring funds when a shipment arrives. Smart contracts can be used to escrow funds that are automatically released when contractual conditions are fulfilled.

We have the framework for an open platform for financial innovation, allowing developers to create decentralised apps and services from banking, insurance, and lending to tokenised assets, governance, identity, reputation systems and more. Money evolves from something accessed through banks to a component accessed through code in any context. The possibilities are only limited by what developers can conceptualise and implement.

Money has progressed from physical objects to ledger entries and - finally - decentralised software protocols. The new vision of money reduces reliance on institutions for secure record-keeping and enables programmability through APIs. Cryptocurrencies represent the next stage in our concept of money—from an instrument controlled by governments and banks to a natively digital, decentralised utility controlled by users.

The Future of Money with an API

The shift from traditional money to "Money as Software" offers significant benefits, such as increased accessibility, programmability, and decentralisation. The potential for an open and accessible financial system makes exploring crypto even more enticing. 

But Money as Software faces existential threats both within and outside its system.

Of these, speculative behaviour is the biggest threat. It's a toxic force and a significant issue that gives rise to extreme volatility, characterised by massive price swings that undermine the stability and reliability of currencies. Emotionally deregulated traders compound this problem. These traders make poor decisions based on fear or greed rather than rational analysis. In a market that should be guided by careful thought and strategic planning, emotionally driven actions exacerbate the volatility.

As it turns out, a Casino on Mars is a poor development environment for stable software.

External threats include poor public perceptions of digital money and regulatory pressures. The popular opinion among non-crypto users remains sceptical. People still view digital money with suspicion, associating it with criminal activity and eco-disasters or viewing it as nothing more than a speculative bubble. This perception is a huge stumbling block to the broader adoption of digital currencies.

The relative anonymity provided by the crypto markets, coupled with their lack of regulation, can make them attractive targets for fraudsters. This can threaten the trust of current users and fracture any potential for future adoption.

And regulatory pressures pose a significant threat. Governments worldwide are currently grappling with the complex task of regulating a system that is anonymous, decentralised and chaotic by design. Rigid rules, created by bureaucrats with little exposure to the nuances of Money as Software, are slowing down progress and growth. We need rules. We need regulation. We need a way to protect the users of a permissionless system. But with the clarity-through-litigation approach of the SEC, all we're getting is a series of expensive headline-grabbing skirmishes that establish little precedent and give builders no direction.

Money has undergone an evolutionary transformation. It has shed its physical constraints and adopted more abstract and flexible forms. In all its forms, it has adjusted to new technologies that have changed how we think about trading value. The question is - will it remain stagnant in its currently accepted form as digitally arbitraged fiat? Or will its extensibility become widespread and reach mainstream adoption?

The answer to this question lies in the hands of those who are actively building and participating in the Money as Software ecosystem, balancing innovation and regulation, openness and security, and the clash between the old guard and the new pioneers.

Developers and engineers aren't and cannot be degenerate gamblers. They must be explorers and settlers, mapping out uncharted territories and building the infrastructure of a developing economic landscape. They are pushing the boundaries of what is possible with digital currencies, creating new applications and services that integrate money natively into their functionality.

Existing financial institutions and systems still play an outsized role in this transformation - as evidenced by the impact of Bitcoin ETFs. While they may initially have perceived digital currencies as a threat, they are waking up to the opportunity to embrace this change and evolve. By leveraging their established networks and expertise, they can either contribute to developing and adopting digital currencies and ensure that they complement rather than disrupt existing financial systems - or attempt to pervert and control the new financial world.

Lastly, the role of users can't be ignored. They are the ones who will ultimately decide whether digital currencies will become the new norm or remain a niche phenomenon. Their experience with these new systems will influence their acceptance and adoption of digital currencies - their ease of use, security, and reliability - and their perception of their benefits compared to traditional forms of money.

Loading...
highlight
Collect this post to permanently own it.
idle thoughts logo
Subscribe to idle thoughts and never miss a post.
  • Loading comments...