Internet of Money

“The future is here, but not evenly distributed.” William Gibson

Bitcoin and blockchain are somewhat of buzzwords, and have been for the last 5 years. A lot of people hold a little bit of Bitcoin, so everyone has a financial incentive and people get emotional about the evolving structural design of this nascent cryptocurrency. I will outline an approachable (and very brief) history of the evolution of money, some of the tools available now and where we might be headed.

*I often use “Bitcoin” as a general proxy for cryptocurrency throughout this essay, as a matter of reference rather than partisanship.


  • A brief history of money, what current problems exist, how cryptocurrencies can solve them and how they will change our future
  • An understanding of what cryptocurrencies are and the different types
  • An understanding of the implications of blockchain technology on the economic and regulatory landscape, the risks, and opportunities


What is money? Economists would say it’s a medium of exchange. Lawyers would say money is official government currency.

Markets and money involve matchmaking, trust reduction, scalable performance, and quality information flow. I use markets here in the sense Adam Smith used the term: not as a specific place or service where buyers and sellers are brought together, but rather the broad set of typically pairwise exchanges whereby the supply chain that makes a product is coordinated. 

Perhaps the greatest thinker about money and markets was Adam Smith. At the dawn of the industrial revolution in Britain, Smith observed in The Wealth of Nations how making even the most humble of products depended, directly and indirectly, on the work of large numbers of a wide variety of people. Rather than trusting in the unlikely altruism of so many strangers, markets and money create many pairings of mutual benefit and thus motivate this large network of mutually oblivious people to act in our interests:

In civilized society man stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons…[In contrast to other animals, man has an almost constant occasion for the help of his brethren, and it is vain for him to expect it from their benevolence only. [Exchange is the] manner in which we obtain from another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard for their own interest.

Humanity has shifted to different forms of markets and money throughout history and across cultures.


Tolowa man measuring a dentalia shell string “thumb to shoulder”.

Tolowa people used shells as currency. Their size was measured by tattoo marks on their arms to measure the length of the shells to denote the rarity of the shell in nature which corresponded to the value of that shell.


Anonymous 17th-century watercolor of the Semper Augustus, famous for being the most expensive tulip sold during tulip mania.

Tulipmania took place in the mid-1600s, some tulip contracts reached a level about 20 times the level of three months earlier – one bulb was priced roughly the same cost of luxury house in Amsterdam. The price swings were not caused by massive changes to production costs, nor did tulips suddenly become particularly useful. What did play a large role in the price explosion was (a very efficient response to) the anticipated government conversion of futures contracts into options contracts. Tulipmania was only a contractual artifact. There was no “mania” at all. Nevertheless, if the tulip bubble had never popped, we could theoretically be using it as money today. But it’s an impractical money; hard to store, hard to transport, hard to subdivide. 

Fiat currency is legal tender whose value is backed by the government that issued it. The U.S. dollar is fiat money, as are the euro and many other major world currencies. This approach differs from money whose value is underpinned by some physical good such as gold or silver, called commodities. Fiat money is an intrinsically worthless object, such as paper money, that is deemed to be money by law. Paper money was circulated, but it was not backed up by anything other than the government’s promise that it will refrain from printing too much money so as to make it worthless. The problem, of course, was that sometimes governments broke their promise. Following World War I, Germany printed so much money that what could be purchased for one mark in 1918 cost about one trillion marks in 1923. For instance, in 2009, one US dollar bought you more than 6 billion Zimbabwe dollars at the official exchange rate (and this was even after multiple currency reforms due to prior excessive inflation rates). In both cases the government lost credibility so that it could not borrow to finance large budget deficits, and hence had to pay its bills with massive amounts of newly-printed fiat money.

These examples, including our current fiat money system are impractical for many reasons like storage, defensibility and fragility of the overall infrastructure. Cryptocurrencies are at the exact opposite end of that spectrum; they are easy to store, transport, subdivide and more defensible than any other form of money or commodity.

The main concern with any currency is that people need to be able to depend on its value, and that value needs to be stable over time. The value of the currency can be unpacked into essentially three buckets: security, storage and scarcity.

Bubbles are not necessarily a bad thing. As the stock market is becoming more efficient, it is actually becoming less volatile. With all of the technology we have deployed into various trading schemes and billions that have been spent on capturing, analyzing and trading on information nanoseconds faster than the competitor, the market reacts faster to information changes and funds are discovering surprises before they create large moves. Computers are getting better at absorbing information and extrapolating out the probable consequences, but are still quite a ways from AI. Over time, we should see bubbles form faster, pop more quickly and fall into a power law distribution. There will be a small camp of non-traditional finance people who can better predict where prices are headed, but the idea that the future will be linear and predictable is a human delusion. One thing for sure is that money is the bubble that never pops.

However money is viewed, it is a store of value and a unit of account. The rhetoric of lackluster Bitcoin adoption in the market means that it is not fulfilling the medium of exchange function but it may be fulfilling a different function like store of value or defense against cyberattack to banks.

There are certainly groups of people and businesses that accept Bitcoin as legal tender and we are already seeing adoption among some of the largest companies in the world. The future is here, but not evenly distributed…yet.


“Bitcoin is to computers what quantum mechanics is to physics. It throws a lot of people off.” Naval Ravikant

Before we jump into the unique value propositions for various types of cryptocurrencies, let’s first establish the underlying concept of what they are doing. Cryptocurrencies are the new protocols. A protocol is a standard for how computers exchange information. One person exchanging dialogue with another is a form of protocol – one person asks a question, the other answers. On the Internet, every time your email gets sent from one server to another, it’s using the SMTP (simple mail transfer protocol) and these protocols power the Internet. The assumption in the early days of the Internet were that since bandwidth and servers are cheap, protocols or information packet transactions are free. Now we have DNS attacks, (demanding resources from one’s computer and costing the sender almost nothing), spam (of which millions of emails can be sent from one computer with low cost but cost the receiver a lot of attention), are breaking down the assumption of free protocols. Perhaps the worst place for an assumption for free protocols for exchanging money. Money, as outlined earlier has to be scarce in some way to underline the value of what is being exchanged. To remedy this, cryptocurrencies and blockchains are adopting what are called “fat protocols” (expansion on this in the blockchain section below).

screen-shot-2017-07-03-at-10-17-20-pm.pngAs the name implies, cryptography is the basis for the security of the currency itself. As Alan Turing famously invented the Turing machine to decrypt Nazi messages during WWII, the same principles apply; keeping secrets through mathematics. Cryptocurrencies are mostly safe from hackers or attackers to the system, though there are points of vulnerability along the operation which we will cover. One of the keys to cryptography is the concept of one-way hash functions or one-way encoding, meaning I can take some data, run it through a mathematical transformation and the output is really hard to undo. The way to access that unencrypted data is with a public key. Cryptocurrencies use these one-way hash functions make statements such as Person A paid Person B, currently we need a central authority to verify that such as a bank. Third parties carry security risk and distributed networks make a lot more sense to secure and diversify that risk.

Bitcoin is the Internet of money. The oldest and biggest blockchain of them all is Bitcoin, which over its eight-year history so far skyrocketed in value from $1 (taking parity with USD in February of 2011) to today’s $2,571.11 per Bitcoin. As of this writing Bitcoin has a market capitalization of over $45 billion. Running non-stop for eight years, with almost no financial loss on the chain itself, it is now in important ways the most reliable and secure financial network in the world.

I can’t say it any better than Nick Szabo:

The secret to Bitcoin’s success is certainly not its computational efficiency or its scalability in the consumption of resources.  Specialized Bitcoin hardware is designed by highly paid experts to perform only one particular function – to repetitively solve a very specific and intentionally very expensive kind of computational puzzle. That puzzle is called a proof-of-work, because the sole output of the computation is just a proof that the computer did a costly computation. Bitcoin’s puzzle-solving hardware probably consumes in total over 500 megawatts of electricity.  And that is not the only feature of Bitcoin that strikes an engineer or businessman who is focused on minimizing resource costs as highly quixotic. Rather than reduce its protocol messages to be as few as possible, each Bitcoin-running computer sprays the Internet with a redundantly large number of “inventory vector” packets to make very sure that all messages get accurately through to as many other Bitcoin computers as possible.  As a result, the Bitcoin blockchain cannot process as many transactions per second as a traditional payment network such as PayPal or Visa. Bitcoin offends the sensibilities of resource-conscious and performance-measure-maximizing engineers and businessmen alike.

Instead, the secret to Bitcoin’s success is that its prolific resource consumption and poor computational scalability is buying something even more valuable: social scalability. Social scalability is the ability of an institution –- a relationship or shared endeavor, in which multiple people repeatedly participate, and featuring customs, rules, or other features which constrain or motivate participants’ behaviors — to overcome shortcomings in human minds and in the motivating or constraining aspects of said institution that limit who or how many can successfully participate. Social scalability is about the ways and extents to which participants can think about and respond to institutions and fellow participants as the variety and numbers of participants in those institutions or relationships grow.  It’s about human limitations, not about technological limitations or physical resource constraints. There are separate engineering disciplines, such as computer science, for assessing the physical limitations of a technology itself, including the resource capacities needed for a technology to handle a greater number of users or a greater rate of use.

Ethereum is very similar in many ways but is a newer and more flexible system than Bitcoin and as such, has potential to do smart contracts better than Bitcoin. The drawback is that it also increases the attack surface, which leaves it more subject to vulnerability. With a market cap of $25 billion, to Bitcoin’s $45 billion, Ethereum is at a riskier state but also holds a lot of potential.

The storage and accessibility of cryptocurrency is another advantage that lets the owner act more freely. Bitcoins are stored in a hardware wallet. Your normal computer is very insecure (not their feelings though), so the distributed system is a lot more secure than an individual computer since it can be prone to malware, viruses, etc. Hardware wallet can be stored on a USB for instance and your private Bitcoin key gets stored on that chip. You can also put it in an online exchange, but then you’re trusting an unregulated bank. You can also write down your address and keys on a piece of paper (or memorize the numbers) and literally cross borders with a billion dollars in your brain.


Cognitive capacity – here in the form of the relative size of a species’ neocortex – set limits on how large primate groups can be.  Maintaining animal or intimate human groups requires extensive emotional communications and investments in relationships, such as grooming in primates and gossiping, humor, story-telling, and other conversations, songs, and play in traditional human groups. Overcoming human cognitive limits to who or how many people can participate in an institution – the famous “Dunbar number” of around 150 people — requires institutional and technological innovation. (Source)

Without institutional and technological innovations of the past, participation in shared human endeavors would usually be limited to at most about 150 people – the famous “Dunbar number”.  In the Internet era, new innovations continue to scale our social capabilities.

Matchmaking is facilitating the mutual discovery of mutually beneficial participants. Matchmaking is probably the kind of social scalability at which the Internet has most excelled. eBay, Uber, AirBnB, and online financial exchanges have brought social scalability via often great improvements in commercial matchmaking: searching for, finding, bringing together, and facilitating the negotiation of mutually beneficial commercial or retail deals.  These or related services also facilitate performances such as payment and shipping, as well as verification that other obligations undertaken by strangers in these deals have been performed and communication about the quality of such performances (as with “star rating” systems, Yelp reviews, and the like). 


I like Nick Szabo’s analogy of a fly trapped in amber. If you see a fly trapped in a millimeter of amber, it could have happened yesterday or a year ago. You cannot take the fly out of the amber and you may see the amber accumulate over months and years, denoting how long that fly has been trapped. The same concept applies to blockchain in that a blockchain is a series of blocks, each block contains a series of computations done by computers all over the world using cryptography in a way that is very hard to undo, so each block is like a layer of amber and the chain of blocks represent how long that fly has been trapped. You can trust that on a signal, anything deep down in the blockchain is mathematically and cryptographically improbable to undo.


Dr. Ian Malcolm in Jurassic Park with his fly trapped in amber.

One way to think about the difference between the Internet and blockchain is the previous generation of shared protocols (TCP/IP, HTTP, SMTP, etc.) produced immeasurable amounts of value, but most of it got captured and re-aggregated on top at the applications layer, largely in the form of data (think Google, Facebook and so on). The Internet stack, in terms of how value is distributed, is composed of “thin” protocols and “fat” applications. This relationship between protocols and applications is reversed in the blockchain application stack. Value concentrates at the shared protocol layer and only a fraction of that value is distributed along at the applications layer. It’s a stack with “fat” protocols and “thin” applications. With blockchain, we are removing humans, bureaucrats from the operation. Simply put, blockchain is exceeding the “Dunbar number” by trading computational scalability for social scalability. One way to estimate the degree of social scalability is by how many people can use it – meaning anyone connected to the Internet, globally – which scales greater than any other currency by an order of magnitude.

There are a lot of “blockchain” talk out there subject to much marketing hype, but there are a few pillars that must underlie a formal system. Intuitively, it is a blockchain if it has blocks and it has chains. The “chains” should be Merkle trees or other cryptographic structures with a similar integrity functionality of post-unforgeable integrity. The transactions and any other data whose integrity is protected by a blockchain should be replicated among a distributed network to as high degree as possible. The blockchain’s security is based on computer science rather than on police and lawyers.


Binary Merkle Tree

Taking a quick and important step back to lay the foundation, we need to establish what a smart contract is. It is simply describing this code that is replicated and running on all of the nodes in the network. That code can enforce on Bitcoin, multi-signature authority for transactions. Imagine there is a smart contract between two parties: one in Albania and one in Zimbabwe. To the extent that they can formalize their deal through this logic, they don’t have to rely on either country’s authorities to enforce the contract, they can just do business directly. Private blockchains can exist between private parties, but cannot accomplish this feat nearly as easily, since it would require an identification scheme, certificate authority, and PKI (public key infrastructure) shared between these various jurisdictions. If 51% of the market participants in Bitcoin try to collude, they cannot change the existing ledger, but they can cause mischief with the current layer being produced. It is a combination of “dry code” (computer-based) and “wet code” (legalese). Smart contracts take that “wet code” and convert it into “dry code” that make it immutable and becomes a fly trapped in amber.

An important part to the architecture of cryptocurrencies is replication. There are thousands of copies of transactions running on full nodes all over the world. Full nodes are servers which can be laptops or larger machines that have a copy of this shared technology can run a full validation itself; the most secure way to run a cryptocurrency.

Current ledger systemIn the diagram above, person A gives person B $100 dollars, the way we keep track of it is with a piece of paper (physical cash). The problem is how can this system be forged (stolen)? Who maintains that sanctity of that ledger? Historically, the central bank would maintain the sanctity of that ledger or the fact that you have a dollar bill with the serial number in it maintains the sanctity of the ledger. Clearly, this is not secure or scalable since there is no infrastructure set up to track the individual serial numbers of these monies and who owns claim to them. In the current system, there is no difference between a large cash payment and a bank robbery. Centralized systems are more efficient but much less secure.

Future ledgerBlockchain has a fascinatingly transparent answer to this problem. Now, everyone in the Bitcoin network who is running a node keeps a copy of the ledgers from the dawn of Bitcoin until now. These transactions, called smart contracts, allows users to see the same block of agreements but also see in detail only those parts of the agreement that applies to them. That is a testament to the computing power and memory we have available in modern computers that people can do this at home. All of these computers running together essentially cross-validate with each other’s ledgers to maintain uniformity across the network in case of a disagreement.

Blockchain is kind of like the Internet Protocol for transactions.


The implications for scaling cryptocurrency is far more than just increased independence, the largest implication is social scalability and increased capabilities that did not exist before. Take an entrepreneur in Guatemala wanting to conduct business in Canada; current financial regulations would likely be prohibitive to her business and she might be siloed to local commerce without scale, but if the entrepreneur could bypass that through a legitimate means of payment such as cryptocurrency, it would be greatly advantageous for global commerce.

Blockchain and Bitcoin, by definition, are keys to decentralization. The full nodes covered above are the distributed network all over the world which are very hard to regulate. The most feasible central point of regulation is the exchanges where Bitcoin is traded, which also makes them insecure since that is where the vast majority of thefts and hacks occur. The exchanges will end up like banks, honeypots for regulators, hackers, etc, which of course, the government will try to regulate and tax.

I would expect to see the following in the next decade:

  • Disruption of existing structures and intermediaries: clearing, houses and the traditional paper-trails
  • Potential bigger disruption: the next level of disruption could be start-ups that provide alternatives to exchanges and banks
  • Faster decisions: contracts will be executed faster, so decision-making and the demand for information in real time will step up
  • More analytics: it’s all digitally recorded and stored so blockchain will spit out tons more data
  • Demand for cloud: the processing power required will increase demand for cloud and ‘cognitive’ computing power

As transaction history keeps building on the full nodes, there may be a point in the future where the each node cannot process all of the historical transactions on the blockchain. If every computer stored a copy of every transaction, the computer will explode. If the transaction volume increases too quickly, then only a smaller and smaller set of computers will be able to run the code, which reduces the participants and who is actually maintaining the sanctity of each transaction. At which point, the network has dwindled essentially back to central banks which control the flow of transactions. Some of the debate is allowing more transactions or limiting it to high value transactions and preserving the diversity of people who can run the code. This one of the problems that the engineers will decide, not the coin holders.

Overzealous regulation can drive out innovation. Just like the Internet disrupted Hollywood, the music industry, publishing, the Internet is going to fundamentally change the finance industry as we know it. The new finance industry is going to settle wherever the home of innovation is for smart contracts and cryptocurrency. If New York chooses to drive that out, it will no longer be the center of finance. Bankers were the miners of the last generation, paid in currency to control the currency. The new bankers are the Bitcoin miners, the new Fed are the cryptographers, the new owners of the system are whoever holds coin, which could be everybody.

When you look at the Financial Crisis, one of the big failings that the crash exposed was in the books and records system — who owns what when. Part of the reason credit dried up in the crash was because banks and other financial institutions struggled to say exactly who owned what and as a result it was hard to judge their exact credit-worthiness. Without knowing that, people were reluctant to lend. On a blockchain system banks could trade assets directly with each other instead of waiting for up to two days for a third party to settle the transaction. Banks like Goldman are open to using blockchain for traditional currency rather than just Bitcoin. As Robert D. Boroujerdi puts it:

It [blockchain] has the potential to redefine transactions and the back office of a multitude of different industries. From banking and payments to notaries to voting systems to vehicle registrations to wire fees to gun checks to academic records to trade settlement to cataloguing ownership of works of art, a distributed shared ledger has the potential to make interactions quicker, less-expensive and safer.

We are clearly at a turning point in the history of cryptocurrencies enabled on the blockchain. There is a cultural disconnect to the extent that Bitcoin/Ethereum engineers despise the financial system and finance people don’t understand blockchains and cryptocurrencies and hate it because they see it as a threat to their core business. Both sides have components that work very well and both have limitations, but are at a quasi-war. And there lies an opportunity so clear.

Screen Shot 2017-07-04 at 11.43.42 AMAbove, a simple visual demo of Symbiont‘s platform. 

Symbiont is bridging the gap between the emerging blockchain ecosystem and Wall Street, with the first issuance and trading platform for Smart Securities. Symbiont’s proprietary Smart Security technology allows complex financial instruments to be modeled in an easy to understand programming language and fully digitized onto a distributed ledger. Symbiont is laying the groundwork to disrupt the current financial system as we know it, by marrying Wall Street with blockchain technology. Symbiont is also now delving into private markets, issuing Smart Loans, Smart Records, Smart Swaps, syndicated loans and digitized gold claims. The implementation of blockchain on any of these activities increases efficiency, transparency and speed of transactions, while also increasing security. (Source)

The financial community is adopting blockchain, the technology that enables Bitcoin, much faster than Bitcoin itself. One of the reasons is that blockchain can easily automate and streamline a bank’s core business activities without cannibalization through a decentralized currency such as Bitcoin.


I say ‘now’ insofar as that we are at a computational and infrastructural inflection point where a cryptocurrency is certainly a feasible option. The concept hardly seems new or particularly difficult but three things had to happen:

  1. The Internet needed to be reliable, pervasive and fast enough for documents to be created, processed in real time and shared globally.
  2. Cryptography had to be developed to provide sufficient security and confidence that the agreements would be honoured.
  3. A common standard for everyone to agree on. This is finally underway. Bitcoin is one example, but the largest is the Hyperledger Project by Linux, IBM, Intel and many others.


The explosion of the Internet has given a channel to many varieties of online transactions, among them social networks (Facebook), retail (Amazon) and many peer-to-peer networks (Uber, AirBnb). These are just the initial attempts to take advantage of our new abilities. Due to the massive improvements in information technology over recent decades, the number and variety of people who can successfully participate in an online institution is far less constrained by the objective limits of computers and networks than it is by limitations of mind and institution that have usually have not yet been sufficiently redesigned or further evolved to take advantage of those technological improvements.

These initial Internet efforts have been very centralized. Blockchain technology, which implements data integrity via computer science rather than via government, has made possible trust-minimized money — cryptocurrencies – and will let us make progress in other financial areas as well as other areas where transactions can be based primarily on data available online. Concurrent innovations with blockchain technology push us even further, with emergent companies like Blockstack, whose goal is to create a decentralized internet. Yes, much like Richard Hendricks’ version in the show, Silicon Valley.

The future is here, and blockchain is how we distribute it to reach social scalability.

**Disclaimer: This should not be considered investment advice, rather an introduction into cryptocurrencies and blockchain technology. Personally, I would not be concerned with which cryptocurrency will become dominant, I am most interested in the underlying technology that enables cryptocurrencies to exist, such as blockchain. The implications and applications are endless.

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