The Internet of Money

I’ve been an Uphold (previously Bitreserve) shareholder for over a year now and a power user of the cloud money platform since they connected to EU banks. I was persuaded to invest in Uphold by the vision and tech track record of the venture’s founder, Halsey Minor (CNET, Salesforce.com, OpenDNS, Rhapsody, etc.), but it’s only recently that I’ve really understood the power and implications of the Uphold platform, which they’ve been summing up for a long time in their investor communications as “the central hub of the burgeoning Internet of money.”

Money is Information + Value

Money is information — how much you own, how much you owe, in what form, under what terms — with a crucial difference compared to the digital artefacts (email, photos, texts, docs, or videos) we’re all accustomed to zipping around on our devices instantly and for free. The crucial difference is the dimension of value. Money is information you can spend. In order to spend it, whomever takes it from you needs to agree that it’s worth what you think it’s worth.

The Riddle of IP-based Money

The Internet makes accessing and moving information free, instant, and easy. Or rather tech companies do that. Medium makes this text accessible to anyone with a networked device. Google sends me answers to my questions. Facebook keeps me in touch with friends. Photos, texts, porn, internet dates — I can access/transmit/connect to any sort of information from my accounts in these centralized service providers that organize and serve up my digital data using the Internet’s lightning fast rails.

But money has that dimension of value that must remain intact. I can email the image of a 100 dollar bill, but that’s not the same as sending $100. Banks provide information via IP — the balance in my online account, my credit card statement— but that information isn’t money any more than the image of a 100 dollar bill is money. IP-based money would have the same characteristics as all other IP-based data— free and instant to send and receive, easy and free to access. Paypal comes close to cracking the IP-based Money nut, but any merchant paying fees and commissions to accept Paypal payments knows the truth — Paypal isn’t free like email or Facebook. It isn’t IP-based money.

Uphold = IP-based Data + Value = Internet Money

Anyone can create an Uphold account with nothing more than an email and a cellphone. Once you’re account is created, you can move value into your Uphold wallet using the bitcoin protocol, bank transfers, or credit cards. You can hold your money in any form — they now offer 30 currencies and precious metals — and you can convert it from one currency to another for free — no commissions, no forex spreads. That’s the information part. In my Uphold wallet I have dollars, gold, shekels, rupees, platinum, silver, bitcoin, and euros. I can send money to anyone with an email instantly and for free, including merchants.

The Flexibility of Internet Money

So, IP-based information box checked, but what about that tricky dimension of value? Uphold connects the information part of money with the value dimension via a full reserve or real assets that is transparently held and audited quarterly. The transparent part solves the problem of undisclosed risk that has caused banks and other financial services to collapse over and over again. The quarterly audit ensures that the transparency is real. I can’t see any other way to connect the information aspect of money to the dimension of value, except through a transparently-held full reserve. Uphold cracked the nut that Paypal has been gnawing on for years.

Banks Suck

Banks = Analog Data + Undisclosed Risk

Banks are a terrible combination of non-IP-based information (wire transfers, minimum balance requirements, credit card fees, etc.) and uncertain value (because they reward risk-taking in the short-term and the costs of their risk-taking are borne by depositors and the system as a whole). You can be sure that banks don’t have a clue about Internet Money because bank accounts are inaccessible to most people on the planet, even those with networked devices. Moving money from bank to bank is slow and expensive. You can only hold your value in certain forms. And they have minimum balance requirements, as well as a panoply of fees, commissions, and penalties.

But the real problem with banks isn’t that the money they hold isn’t IP-based, it’s that the they aren’t transparent about how they hold their money. Banks have blown up and will continue to blow up because there is a disconnect between the information they present depositors (how much money I have in my account) and the value of the yield-bearing assets they’ve accumulated with those deposits (car loans, mortgages, credit card debt). The disconnect is caused by a lack of real-time, granular disclosure of bank assets and liabilities. The costs and delays of banks and their lack of transparency both stem from their inability to innovate so as to bring their consumers all the benefits of Information Technology.

Uphold remedies the two major flaws of banks by enabling IP-compatible money whose value is substantiated by a transparently-held reserve. I know how much money is in my Uphold wallet. It’s free and instant to access, hold, send, spend, and convert. And I know its money (rather than just data) because Uphold publishes every change in obligations to its members and every change in assets in its reserve. Uphold brings all the benefits of information technology — flexibility, accessibility, openness, transparency — to money.

Real-Time, Audited Transparency

The Internet of Money Needs a Hub

Because Money is information + value, and because the only way to substantiate the value of IP-based assets is via a transparently-held reserve of real assets, it follows that the venture that enables the Internet of Money will be a centralized service, a hub with billions of spokes radiating from it. Bitcoin fails as Internet money despite being an IP-based asset, because there is no central authority backing its value. Bitcoin’s effort to remedy the abuses of banks and central banks via a trustless decentralized money system ultimately fails because bitcoin isn’t money. Remember money isn’t just information, it’s also value, value that can be exchanged and will be accepted. Few want to accept bitcoin for payments because there’s no telling what it’s worth or will be worth. It doesn’t even work as a value transport layer because its decentralized network is slow and doesn’t scale.

The Internet spread from node to node, rather than radiating from a single hub, so it might strike some as inconsistent that the Internet of Money will be centralized. But there’s a reason why nation’s have central banks — a single authority to issue and validate the money circulating within a nation’s borders. And there’s a good reason why the biggest tech companies are centralized services. The Internet needs a central bank to issue and validate the IP-based assets that can be used as money within the boundaries of the virtual realm. The Internet of Money requires a central hub. So does the Internet of Social (Facebook), the Internet of Search (Google) and the Internet of Professional Contacts (LinkedIn).

Why Centralized Services Dominate

How Money Becomes Internet Money

As the Internet grew node-by-node, early users produced the content that flowed between the nodes. Use groups, chat rooms, email. The Internet of Information (aka the Internet) didn’t need to wait for Google to start scanning books or for the New York Times to put up a website to happen. But because money has the added dimension of value, the Internet of Money can only happen when it is connected to existing deposits of money. Bitcoin exchanges like Coinbase, Circle, Bitstamp, LocalBitcoins connect bitcoin to existing sources of money (banks, credit cards, and cash). But in gaining the quality of IP-compatible information, the money converted into bitcoin lost the essential qualities of money.

Uphold started by connecting their cloud money hub to bitcoin. Up until recently bitcoin was the only way to move value into or out of Uphold. Once bitcoin was converted to Uphold dollars or euros or yuan, it became Internet money — IP compatible + value. Now Uphold is connected to the world’s banking systems, credit card networks, and cash (via www.airtm.io). Money entering Uphold from these legacy value repositories gain the characteristics of Internet Money — free to hold value in any form (no more currency controls or minimum balance requirements), free and instant to transfer to anyone in the world with an email (no more wire transfer fees, credit card charges for merchants), free and instant to convert to any other form of value (no more forex rip-offs), transparently-held (a real-time proof of solvency), and substantiated by a full-reserve (no more bank blow-ups or bail-outs).

It isn’t money, that’s for sure.

The Internet of Money > The Internet of Anything Else

You can enjoy a happy prosperous and fulfilling life without having an email account. You can have a social life without Facebook. You can rely on libraries, instead of Google, for your searches. You can eschew the spammy social climbing of LinkedIn and still have a successful career. But it’s just about impossible to live without using money. Commerce is the world’s oldest and biggest social network and commerce as always depended on money in one form or another. By giving money the qualities of IP-compatible data and by solving the riddle of how to attach the dimension of value to that information, I believe Uphold might well have created what will one day become a tech behemoth to dwarf all others.

And even if they fail (which as a shareholder I certainly hope they don’t), they have presented a workable template for others to follow: cloud-based assets backed by a transparently-held full reserve.

The Template for Internet Money

I look forward to the day when currency controls and capital restrictions are as antiquated a notion as information censorship by governments, when anyone with a networked device can hold money in the cloud and move it instantly and for free, when banksters and their economy-ruining frauds are a thing of the past, when there are no more forex rip-off kiosks in airports, no more remittance rip-off kiosks in immigrant neighborhoods, no more cash-checking rip-off shops in poor neighborhoods, when everything about money (except earning it!) is as free, fast, and easy as everything else in our digital lives.