Free-Range Money: Bitcoin, Blockchains, and the End of Banks
June 28, 2016
Originally published in the RSF Spring Quarterly
By Tim Parsa, Managing Director, Uphold Mexico and Head of Global Strategy & Markets
Cattle ought to be raised grazing in pasture, not confined to dirty feedlots and gorged on government-subsidized corn. That’s not a controversial statement for anyone familiar with the health, ecological, or taste benefits of grass-fed beef.
Here’s an even less controversial statement: Money ought to be able to roam freely on the Internet like everything else in our digital lives—not be trapped in slow, costly and opaque banking institutions.
These past five years, I’ve dedicated most of my time to two enterprises: Estancia Grass Fed Beef, an RSF-financed company, and Uphold, a fintech venture that brings all the benefits of the Internet to money. At first glance, the two don’t have a whole lot in common. Estancia has become the leading grass-fed beef brand in the United States, reconnecting modern consumers to an ancient and sustainable model of food production. Uphold has powered more than $800 million of transactions in 150-plus countries over the past two years. What Estancia and Uphold do share is a mission to transform the unsustainable status quo to the benefit of everyone.
Creating an Internet of money is complicated. It requires bringing all the flexibility and innovation of information technology to an aspect of human culture that first emerged over 5,000 years ago—money.
The Evolution of Money
Commerce is the world’s oldest and largest social network. The first gold coins facilitated trade between empires, expanding that network to the benefit of every new connection. Modern banks enabled even more exchange over greater distances. But banks quickly settled on a business model predicated on money flow friction (that is, fees and delays), undisclosed risk, and exclusion.
The exclusionary nature of banks extends far beyond minimum balance requirements that the working poor and immigrants can’t afford. While billions of people enjoy Internet content and services, many of them have no access to banks and therefore must rely on inadequate venues to pay bills and send money.
For humanity’s largest social network to continue growing, money must make the leap to becoming Internet compatible. Currency that’s Internet protocol compatible allows anyone with an email and a cellphone to maintain a money account that is just a click away from every other money account around the globe. This compatibility permits merchants to accept payments from anyone, anywhere, at any time, and in any currency—all instantly and for free. It is the beginning of the end of paper money and most likely of banks as well.
Napster of Money
Bitcoin pointed the way to IP-compatible money. The cryptocurrency demonstrated two key tech innovations. The first was that technology allowed the transfer of value, such as Bitcoin’s digital asset, over the Internet between any two people with no need for intermediary financial institutions (such as banks). The second innovation was that technology could now account for digital assets with real-time transparency.
A blockchain is a publicly accessible database that provides a real-time and historical accounting of data. When that data has value, as in the case of the Bitcoin blockchain or Uphold’s Reservechain, this data structure also provides traceability of all transactions back to their source. This public, real-time, and searchable presentation of data holds the promise of creating a new standard of transparency and accountability for financial services.
Just about every too-big-to-fail bank has recently announced an initiative involving blockchain technology. This typically takes the form of a working group or pilot program. But it is unlikely that any existing financial service will play the role of an iTunes to Bitcoin’s Napster. Zero-cost, instant, and real-time transparency are all anathema to the banking business model of fractional reserve. Undisclosed risk is how banks can afford to pay those fat bonuses, and also why prominent and pedigreed banks go bust all the time.
Bitcoin’s fatal flaw is that it isn’t anybody’s money—it’s too volatile and exotic. It is a revolutionary technology that almost no one can use. But just as Napster gave way to iTunes, Spotify, Pandora, and a host of other ventures dedicated to disseminating IP-compatible music, Bitcoin’s innovations will arrive for the masses via tech ventures committed to making it easy for consumers and businesses to access and use IP-compatible money.
The Internet of Money
What might such a venture look like? It would have to enable any form of value, just as IP can accommodate any sort of information. Moving money with this service would have to be as instant and free as posting a photo to Facebook or messaging on WhatsApp. It would have to be accessible to anyone with a networked device, and easy for anyone to join regardless of what amount of money he or she wants to hold in the online cloud. And it would have to incorporate Bitcoin’s real-time transparency, disclosing and accounting publicly for all risk in the system. Such an IP money platform would also need to provide a way for developers and entrepreneurs to easily build businesses on top of it, so that the people who best understand local money problems can address them.
We are very close to making this scenario a reality. With Uphold, today anyone in the world can hold over 30 forms of value, from fiat currencies to cryptocurrencies to precious metals—all in digital form. Moving and converting money on Uphold is instant and free. Developers are building over 200 businesses on top of Uphold’s open application programming interface. And we do it all with a real-time accounting of our system’s assets and liabilities—a proof of solvency—so that Uphold members know their value is safe.
By expanding the social network of global commerce to anyone with Internet access, IP-compatible money will foster economic opportunity and freedom at an unprecedented scale. Circumventing the ever-growing skim that banks claim off the top of financial transactions, the new approach to money will enrich local communities and strengthen their connections. It will empower individuals and profit entrepreneurs. And money—that mutable meme and foundation upon which we have built modern civilization—will flash like lightning from one person to another.
Tim Parsa is a graduate of Yale College and the New York University School of Law, as well as a returned Peace Corps Volunteer (Guatemala 1991–93). He was a founding investor in Estancia Grass Fed Beef and Uphold, and served as Uphold’s first CEO. He lives in San Francisco with his two young sons and their mother.