In the early 1970’s, the financial industry was transformed by a strange confluence of events. In 1973, The Chicago Board of Trade opened the first options trading floor and, almost as if on cue, just a month later, the Nobel prizewinning Black Scholes options pricing model was published. Soon after, Hewlett Packard came out with the first pocket computer small enough for traders to use on the floor and that, combined with a glut of engineering talent made available by the closing of the Apollo space program, created a wave of revolutionary change that is still being felt even today. Almost overnight, finance was transformed from a clubby world of cozy relationships to a mathematical one of complex securities, abstract formulas and computing power. Now, a generation later, the financial industry is about to be remade once again, except this time, it is not obscure financial securities that are being transformed, but very nature of money itself. What is Money? The concept of money dates back to the beginning of civilization. The Israeli currency, the shekel, was originally a measure of weight (11 grams) and each shekel coin originally corresponded to that amount of silver. Coins were stamped to certify that they contained the required weight, infusing transactions, even among strangers, with an element of trust. It’s easy to see how money caught on. It was a much more efficient way to transact business than bartering one good for another. Money was also a useful store of wealth, certainly more convenient than livestock or grains. Those two core functions—a medium of exchange and a store of value—still define money today. The nature of money changed after the Bretton Woods Conference in 1944, when most countries tied the value of their currencies to the US dollar, rather than to gold or silver. When the US went off the gold standard in 1971, all currencies essential became fiat moneys, with their value derived from the governments that issue them rather than from commodities. Many people object to the concept of fiat money because of the control governments have over them. Central banks can increase or decrease the money supply at will, giving them enormous control over economic activity. In extreme cases, hyperinflation can ensue, debasing the currency and wreaking havoc. So it’s not surprising that innovating the concept of money through a digital currency has been a recurring theme in technology circles. Intuitively, it seems that the global financial system should be based on more than the judgments of a small group of central bankers. Yet only recently has digital money actually become possible. A Mathematical Problem Of Trust
http://www.forbes.com/sites/gregsatell/2014/11/08/the-future-of-money/
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