Answering the question “what is money?” is not easy. With the introduction of crypto assets and more time spent in the virtual realm, the question is not some dusty, esoteric affair.
This is not the right moment for the law to be silent.
A world comprised of the analogue and the virtual will need both sophisticated and flexible legal tethering. Things that are well tethered together, even if they are not identical, do not drift apart. If we do not work out the foundational legal rules for how we bring these two similar but not identical ‘jurisdictions’ together, we should expect serious economic and social misadventures ahead.
Of course, humans have not always been reliant on derivative style tokens (from clamshells to coins) to facilitate sharing and trade. They have though always relied on the law or the deeper law – LORE, to assist with apportionment, performance and when needed, enforcement in the sharing of assets.
Barter preceded tokens (units of account) and has never entirely gone away. Many cultures managed sharing, as well as the division and exchange of goods and services via a complex interplay of social rules – social status, position, and relations. Where the basis for the exchange was a generally a legal right, and sometimes a legal responsibility born of the Lore and enforceable by the Lore.
“Our needs were simple. We were entirely without money. Money was something we couldn’t eat or wear; therefore we had no use for it. With the currency of the bush,which was food, our spending power was circumscribed by the tribal laws.”
Any substantial food was carefully and strictly divided in accordance with the rules. A kangaroo, for instance, was invariably carved so as to allot the various portions to predetermined owners whose right was inalienable.
My entitlement was so well established that I could, without fear of remonstrance, walk into his camp and cut of my share before he had touched it.
None of us ever disputed the right of another to the fair share, even
though it was occasionally thought that some lazy men might have done a little more hunting.”
By observing Australian indigenous (pre-colonisation) social norms, we can see that tokenised derivative money is not a universal requirement, but contractual style legal arrangements in division of assets appears to be a more foundational right (or responsibility).
Finish this sentence: Money is…
1. Different to “not-money”
2. a unit of account, mechanism of exchange, a store of value
3. a claim
4. a thing
5. unnecessary
6. a legal institution
7. a social institution
8. a means of exchange
9. a wide church of claims that includes crypto assets
10. a tool of the devil
What is money again then?
The truth is that there has never been universal consensus as to what money is – although some would say that theorists like Menger got pretty close with the characterisation of money first and foremost as a medium of exchange.[1] If Menger was right, then digital assets—whether central bank digital currencies, smart contracts (tokens), stablecoins, payment tokens, smart legal contracts or any digital twin or digital derivative—can (and should) be characterised as “money” when they are used as a medium of exchange.
Introducing Complex Money
The digitalisation of money into lines of code (and now programmable lines of code) by the banks and also by the cryptopunks, has catalysed an even more complex dance of elements co-mingling in our digital wallets.
The primary change is that going forward, Complex Money will be endlessly divisible, endlessly replicable (unless it has some centralised or decentralised intervention to prevent the double spend problem), programmable, composable, data-producing and collecting, and subject to endless variations in issuers, dealers, features, rights, obligations and remedies, where those rights regularly and increasingly extend to credit and to gambling.[2]
While in 2022 you may have $1000 fiat dollars in your commercial bank savings account (your digital wallet), in 2030 that wallet will contain lots of different digital things.
For example, in a decade from now, your wallet may contain $1000 worth of value comprised of; a tokenised piece of digital art, (housed in a programmable smart contract that oversees the staking of that art for compound interest and IP rights), some amount of a programable central bank digital currency issued by a central bank, a digitised derivative regulated emissions unit issued by the state and dealt with under a financial licence by a crypto asset exchange, some amount of fiat currency issued by a commercial bank paid by your employer, and a 0.0000005 ‘cent’ gambling smart contract issued by a hybrid decentralised autonomous organisation (DAO) with gambling and financial service licences[3]. The potential mix is endless, and all digital assets will be exchangeable real time as mediums of exchange (money).
Some may say that Complex Money is another name for digital barter on steroids.
Complex Money equals legal contracts.
If you are reading that list and thinking that the future of money is sounds increasingly like money is a contract(s) and less like the simple fields in a cheque or attributable to a Bitcoin token, you would be correct. There is a reason digital tokens have been christened “smart contracts” (see here for the difference between Smart Legal Contracts and smart contracts[4]).
Many people talk about the regulation of crypto assets as the regulation of DeFi – or distributed finance (as distinct from traditional finance or TradFi). The implication of this is that financial regulators the world over, from the US Securities Exchange Commission (SEC) to the Australian Securities Investments Commission (ASIC) to the Monetary Authority of Singapore (MAS) are grappling with how to make financial regulation fit for purpose in the dawning age of Complex Money. The reason they are struggling is because financial regulation in its current form is too narrow to address Complex Money.
In the alternate, only scattered pockets of the legal industry have recognised the critical role of the legal contract in the choreography of Complex Money.[5] In the future digitised money and digitised contracts will become increasingly similar and have the same technical requirements. Both the finance industry and the legal industry have a critical role to play in our move from the analogue to the digital.
How can we responsibly support the evolution of money and contracts?
Governments around the world must invest in new processes, entities, and digital infrastructure to support our transition to Complex Money and smart (and legal) contracts. This includes investment in and support for new holistic digital asset legislation, as well as ‘digital wash’ of existing legislation to see it is still fit for purpose in a virtual world.[6]
Without the right legal guardrails, we are moving toward the virtual world underprepared for what will be exponentially increasing risks around legal certainty, privacy, cybersecurity, algorithmic bias and interdependencies, money laundering, consumer rights and a potential failure to control the money supply in any meaningful way – including the ability to apply macroeconomic policy including monetary policy and the use of controlled taxation to fund public goods. This is not an exhaustive list of risk. With the digital economy on track to hit 30 per cent of global GDP by 2030, this discussion needs to move into new and bigger rooms now.
[1] See Karl Menger (C.A. Foley trans.), ‘On the Origin of Money’ (1892) 2(6) The Economic Journal 239.
[2] We will talk about each of these concepts more in our next article: Complex Money – what’s in my robot’s wallet?
[3] And that is just the beginning. In 2040 your digital wallet may have its own autonomous identity and act on its own account using artificial intelligence spawned from the historical data it has accrued over the previous ten years managing your complex money.
[4] Blycha and Garside (from Chapter 7, Smart Legal Contracts – Jason Allen, Peter Hunn – Oxford University Press)
[5] Contracts themselves may be the ultimate “unit of account” of the future. This would require some kind of standard (and therefore abstract) unit or measure to make incommensurable contracts—relationships between people—commensurable. Think “tokenization of everything” meets the ISDA Master Agreement in a smart legal contract.
[6] An example of a previous ‘legislative wash’ is the broadscale updating of legislation and regulation to account for new standards of competitive neutrality between the government and the private sector.