I don’t believe we will see a metaverse really explode until we have a solid economy within it. And any economy must deal with money. I have argued with far too many people about the nature and philosophy of money so I understand the general low bar that exists for an understanding of what it is and how it works beyond the bumper sticker statement that it is a shared hallucination. So let me put down my position.
Money is wealth, nothing more. But currency is how we trade money. So we must first understand the difference between money and currency. Obviously one can exchange one currency for another. At the moment of transaction their wealth did not change (theoretically), it just became denominated in a different currency which enabled different future transactions. Virtually anything COULD become a currency but some things make better currency than others. And in the past there have been many including the beads used to purchase Manhattan Island.
A fundamental property of any currency is to be a commodity. That is to say individual units of currency are interchangable, or fungible in techno-terms. Another is that it must be relatively scarce since if you can go to some money tree and just pluck off as many bills as you like, it will not work as currency. It must be pretty close to a fixed quantity.
Gold, diamonds and other precious commodities have been used effectively. None of them are particularly plentiful despite their presence in the earth. One must engage in the work of mining and refining to make them useful as currency. But one disadvantage is that they have irregular denominations. If your cow is only worth one half of my gold nugget, the transaction is hampered by the need to divide it. For diamonds it is worse. So to be an efficient currency there must be standardized units. And that is where governments entered.
If you show me a gold bar how do i know it is pure gold? I must bring it to someone to assay (test it) for purity. But if it is offered in coin form with the mark of a guarantor of quanity and purity, then we might be able to forego that step and just assume it is what it purports to be. What makes that work is the punishment that would be metted out to someone who counterfits. Now we have established a unit of measure which becomes a number that can be recorded in accounting books. Currencies give a unit of record. And this system worked well for many centuries. So why don’t we use it today?
Gold coins already depended upon a government to create trust in the objects. But the objects themselves (if not adulterated) still retained intrinsic value. The knurling of gold coins was instituted to prevent people from taking small amounts of gold from each coin to smelt into bars. In time people realized that if a government was to ensure the unit value of the coin, the fact that its intrinsic value was less than its face value made little difference in day to day transactions of citizens. Within a few centuries we went from commodity currencies to fiat currencies where the intrinsic value of the note was irrelevant as long as we believed it held its transactional value.
In the transition we saw gold or silver backed currencies that guaranteed the exchange of the fiat currency for the equivalent value in the metal. But as the economy grew that ability to maintain such reserves of precious metal became a burden and was completely abandoned at some point past mid-century.
One thing difficult to accept is that there are different types of money. Currency in my pocket is one type. Money I have deposited into a bank in exchange for interest is another. And money deposited for extended periods in exchange for higher returns is yet another type. They have different effects on the economy. And managing the economy has historically been a function of the agency that issues the currency. Since they have the ability to literally print bills, it is a sober business since mistakes they make can create havoc in the real economy. And even measuring the amount of different types of money in the economy is a challenge for a major nation.
To the average citizen, money to us is the balance of account at the bank measured in United States dollars (USD). And we can exchange goods for money using many instruments such as checks, credit card purchases or Venmo. We have virtualized money into so many bits over a wire. Yet these bits still represent fiat currency and the government can exert some control over major currency exchanges as anyone who tries to withdraw $100,000 in currency will discover. Borders matter. But in cyberspace there are no borders and in the past 50 years we have evolved new currencies that specifically seek to circumvent national borders. Enter cryptocurrencies.
To have a metaverse economy will require a trusted means of money exchange. To have that be a nation’s fiat currency runs into issues for international transactions. A particular vendor (or game) can offer in house currency that can only be converted to fiat currency through restricted means or only enables in-house purchases. This sets up the basic issue that a truly metaverse economy will encounter, how to have a worldwide economy? The expectation is that this will be a cryptocurrency of some kind. But what is a cryptocurrency? Let me offer a very abbreviated tutorial.
You already know that a credit card transaction is a series of secure communications between the vendor, their bank, and your bank. If you want a currency that exists outside the banking system, there must be ways of trusted exchange. To avoid creating cyberbanks, clever math people came up with ways to create very long strings of numbers that had easily verifiable properties but which were difficult to find. Finding them was called mining. And by math we know that there are a limited number of such number possible. So a unit of value of the cryptocurrency is one of these numbers.
But if a unit of currency is just a number, why can’t I just copy one? This was solved by another mechanism called block-chain with distributed ledger. A bank must maintain a ledger to keep track of your balance. When you make an exchange via the special protocols of that cybercurrency, it is recorded on a ledger and then duplicated accoss all the copies of that ledger. It is the responsibility of everyone mining cryptocurrencies to participate in both recording and verifying each crypto transaction. That ensures only the older of that “coin” can legally use it for exchange. This allows the free circulation of that cybercoin in some economy with no central authority yet with a degree of trust in the security.
There is no restriction on the variations possible in cyber coins. Bitcoin is clearly the most talked about. But there have been so many others too. Like national fiat currencies, some are dominant and new ones never get anywhere. Cyber currencies perform much like stock offerings in a new venture, you pay your money you take your chances. But successful cyber currencies often bloom in value as they grow in use. This form of funding a venture using a cyber currency is called an Initial Coin Offering (ICO) which mirrors the initial stock offering of newly public corporations.
This is as far as I want to take this posting although so much more should be said about trust, regulation, fraud and other activity with cyber currencies. But this is enough for me to later discuss how a metaverse may grow its economy. In time I hope I can crack the ideas of how we can socialize the space to control the worst forms of asocial behavior that would impede the growth of that metaverse economy.
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