Money, memory, and blockchain
In his paper entitled “Money is Memory”, Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, makes a case for understanding money as a primitive form of memory of past transactions.
Intuitively this makes sense. If money supply is limited such that one can not acquire it in any way other than by producing some good or service then the amount of money you possess is a reflection, with no specifics, of how much you have produced. Memory (in the form of a publicly observable record of past transactions) is but a more detailed reflection thereof. Since money can always be calculated from transaction history, money is never better than memory.
But Kocherlakota makes an even more interesting point, albeit, under some rather strict assumptions (relaxing which leads to possible alternative outcomes) that memory is, in some sense, better than money. This makes intuitive sense as well. If one is allowed to see past transactions, than one is allowed to place a richer set of conditions on his or her trade counterparts. So, for example, I may want to give more to those who help causes I support and give less to those who do things I don’t support. This allows me to align my economic behavior better with my individual set of preferences. In a sense, substituting memory for money would create a system that merges economic and social motivations into one and the same thing.
This, of course, is purely hypothetical, for we today do not possess a technology that would allow there to exist a sufficiently public, sufficiently permanent, and sufficiently rich form of memory. Or do we? I’m referring, of course, to blockchain technology. What if in thinking about blockchain systems we, in fact, distanced ourselves from money and went the memory route. What would that entail? How would that affect motivations of individual economic participants?
I have no answers, yet. But let me quote a paragraph from Kocherlakota’s paper, which, being that it was written in 1996 seems uncannily prescient. Here it is.
“[…] the paper demonstrates that money may only be an imperfect substitute for high quality information storage and access. This […] serves to underscore that the government’s monopoly on seignorage might be in some jeopardy as information access and storage costs decline.”
I will only add to that one thing that Kocherlakota obviously missed, simply because it was decidedly off the table back then. In addition to lowering costs of information access and storage, we are also observing a qualitative shift in reliability of decentralized records, which is obviously necessary for historical records to become a functional economic basis.
What this tells me is that we may be moving not only to a more efficient economic system, but also to an entirely new one. Do you agree?
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Alex Bulkin is a co-founder at CoinFund, a blockchain technology research firm and proprietary cryptoasset investment vehicle. CoinFund’s team brings together expertise in high technology, quantitative finance, private equity research, and social innovation research to generate insights into this exciting growth space. CoinFund provides consulting and research services to investors and companies interested in blockchain technology. Follow us on Twitter or join the discussion on our open community Slack.
