An Internet Of Money?

Making systems universal in the sense of programmable is about taking them to the Edge of Chaos. This is boiled down from the theory of complex systems…if, in terms of the states of matter, a system is solid enough to store and liquid enough to perform transmissions it's universal though programmable…in this metaphor gas is chaos (or randomness), solid is order and liquid is the phase of complexity.

Our money system is programmable

Money (in our fiat money system) is solid enough to store value and liquid enough to be the medium of exchange (and it's a numeraire…a unit of account).

But we know from computer science that programming becomes better with the support of an operating system…a set of programs managing computer resources and provide common services for applications…it hides the complexity of the underlying system from the user. In particular it manages memory dynamically…fixed memory allocation must be an exception and timely limited.

To maximize programmer productivity integrated development environments are built. In their core they interpret programs in a language by translating them into instructions that are formally understood by the underlying system. Programs deal with data and algorithms.

Money programming is still low level

There are many simple abstract machines that are programmable, but I think of a Von Neumann architecture with a Arithmetic/Logic Unit, a Control Unit and a Memory - a register machine.

Money? Money is stored in accounts and the control unit is based on double entry bookkeeping (equity = assets - liabilities  in the accounting equation approach serves as error detection tool) and its rules. And money as a contract of an exchange it simplifies and secures the transformation rules…value, time, interest…

It's important to understand that the market is not a place but the exchange itself...

Monetary policy is the process by which the monetary authority controls the supply of money…its classic equation is Quantity of Money*Velocity = Represented Transactions*Prices or M*V = Price Level*real GDP. it's easy to see that if the money does not circulate (it's put into the fridge) its quantity must go towards infinity and if we think GDP is already close to its full capacity changes in M*V will effect the Price Level…More money meeting rare goods will drive prices…but we have immaterial goods that are available in "infinite" copies…

We understand money as product with a time value…and there are derivative products atop it as well as atop other underlyings. We are able to calculate technical (fair) prices and risk spectra in a risk neutral regime. We've great models and methods, but if we want to understand and avoid systemic risk we don't have enough informative data. Big data turns out to be a big joke when we still struggle with getting the informative small data...

I don't need to repeat that complexity and low level system programming put us in tailspin.

For many years now I ask: where is the initiative for an internet of finance? It's too much spread interest: the massive-data sellers, the market makers…

But here it comes (through the back door)?:

An internet of money

Envisioning a world where we can trade money as we trade data…and program it? In a relative short period I read two articles that I take as a hope: An algorithm to make online currency as trustworthy as cash, WIRED and Why Bitcoin is and isn't like the internet, Joi Ito's web.

Remember, in our fiat money system a modern, sovereign state can make anything it chooses a money…provided it accepts the proposed money in payment of taxes…why not cryptocurrency?

With a kind of symbolic programming of money we could construct things like option, future…or other derivative special purpose money and check, say, debt webs in order to understand how wide would the spread of economies distress be, if a market participant failed.

The internet of money will help to achieve the antifragile...a system becoming stronger when stress is decentralization (of money creation), diversification (a portfolio of moneys for a purpose), agility (prepared for money regime changes) and trust (see the WIRED article).

Centralizers, integrators, top-downers…may raise their eyebrows…but innovators get the chance to fix a system they haven't broke.

There is one more little thing: understanding money, we need to think of properties and exchange first and try to understand why prices and values are not equal. Think what you can buy for a barrel of oil in Switzerland, compared to, say, South Africa?

Make trading a fair play needs programming...