Reading a little about the island of Yap, located in the western Pacific Ocean, is a great way of understanding Bitcoin. Residents of the island used huge limestone rocks called Rai stones as currency. Some of the stones were so large and heavy that they were impossible to move, therefore not playing the traditional role of a ‘token’ – that when possessed by the owner it is near or on his personage. When transactions took place, the affected parties simply agreed upon who was the new owner of the stone, despite not necessarily moving it to have proximity to that person. There’s even reported instances of transactions occurring involving stones that had sunk to the bottom of the Pacific, thanks to an unfortunate mishap on the boat trip back from the nearby island of Palau where the stones were quarried.
So what does limestone have to do with Bitcoin? Well, it’s all to do with a new way of understanding tokens in transactions – and the lack of them. Whilst at first glance, Yap residents are employing a traditional system of tokens for currency, it is actually something quite different that’s going on when they strike financial agreements. A token that no one can even touch or hold at the moment of the transaction isn’t the thing that is making the transaction happen – it is the agreement between the parties that ensures that everything goes smoothly when the residents of Yap buy and sell to one another. Dave Birch suggested at Consult Hyperion’s Tomorrows Transactions forum that this is an excellent analogy for Bitcoin.
Felix Martin, author of ‘Money’ offered the view that it’s not quite right to think of Bitcoin as the first ‘virtual’ money. Over the course of the two day event, the views of speakers seemed to indicate that in time it may be better to think of Bitcoin as a new online financial credential, a bit like a credit score. In other words, it is a set of factors that can help define a person’s wealth profile, rather than a currency.
One thing everyone seemed to be agreed on was the need for security solutions and robust credentials management options – given the unregulated and irreversible nature of Bitcoin transactions, savvy investors, businesses and consumers alike will need reassurance before getting stuck in, which is where identity verification and credentials management tools like Netverify will come in handy.
If and when Bitcoin becomes mainstream, it seems likely that understanding it will change the way that we use traditional currency – both online and offline.