Your money isn’t real

Last week, my spaceship got destroyed, I read about NFTs and I pondered about bitcoin. Allow me to explain how this is all related. As I mentioned in an earlier post, occasionally I play Eve Online, an open world set in space. The most valuable areas in the game in terms of resources and loot are also the places where there are no rules. In this dog-eat-dog world, any player can attack you, kill you and take all your valuables. This is exactly what happened to me – which made me really sad and upset. Until I remembered that we’re talking about a few flipped bits in a computer in, I think, Iceland.

This weekend, I read about NFTs or non-fungible tokens. According to Wikipedia, these are cryptographic tokens that represent a unique digital asset, such as art, digital collectibles and online gaming assets. Who cares, you might ask, but when NFT-based art pieces are starting to get sold by Christie’s to the turn of 3.5 million dollars and NFT sales last year totaled about 250 million (up 300 percent from the year before), it’s obvious that there’s a group of people that considers these NFTs valuable.

Last week, I also read that Tesla has added 1.5 billion dollars in bitcoin to its balance sheet. A decentralized digital cryptocurrency. A bunch of numbers on a computer. Difficult to calculate numbers, admittedly, as it’s cryptographically ensured and hence bitcoin mining, but still. A car company buying some numbers to the tune of 1.5 billion? What the heck’s going on here?

None of these assets are real as in we’re unable to physically touch or hold them. And during my run this morning, I realized that this is nothing exceptional. Many of the things we use in our day-to-day existence aren’t real. The prime example is money, of course. This asset plays an enormously important role in our lives and industry, but of course, it isn’t real. Even if you hold pieces of paper or coins, their inherent value doesn’t represent the actual value. Money works because we’ve created a common, inter-subjective illusion of the value of money that makes society work.  

As a society, we’re constantly creating new forms of value. With digitalization, these are becoming increasingly virtual. This is great from an environmental perspective as increases in living standards are becoming less correlated with an increased use of physical resources.

The statement that more and more value is created in digital form may sound obvious, but many of us only realize the new form of value way too late to do something useful with it. I remember that an uncle of mine, who ran a very successful plumbing company, showed us his new mobile phone in the early 1990s. My father could, for the life of him, not understand why anyone would want such a device. This was when he drove 60,000 kilometers per year and he could have used all that time in the car to get half his job done with a mobile phone.

Human needs haven’t really changed over the millennia. We all want to feel safe, compete in hierarchies of our choice and learn and develop. However, the form this takes changes continuously. We have mobility needs evolving from sandals to shoes to horses to cars to trains to airplanes. We want to communicate with loved ones and this has evolved from speech to letters to phones to email to video conferencing and Facebook. This relates to the late Clayton Christensen’s notion of the job a product is designed to do. It’s never about the product, eg a truck, but always about the job that you’re looking to get done, eg transporting goods. And when a better way of doing that job is created, we move on.

One of my concerns is that I, and many with me, don’t realize the importance and relevance of new ways to create value, especially through digital assets. Interestingly, when software was first introduced and started to scale in the 1970s, there was a large movement among the programmers of that age that software should be freely shared with everyone as one couldn’t or even shouldn’t have to charge for non-real assets. The open-source community still maintains part of that culture.

Part of the problem of recognizing the value of new digital assets is that early in the creation of a new asset, there often is a religious fervor around it. Try to criticize a cryptocurrency like bitcoin to those holding these in their portfolio and see what their reaction is. There’s an incredibly strong belief among the supporters that bitcoin isn’t just an incredibly valuable asset that will only increase in value. It also is a way to break the control of governments and banks over oppressed citizens. For those of us that don’t feel that oppressed and aren’t calling for the revolution, it’s easy to get put off by the political aspects of a new digital asset and miss the actual value it provides.

The second challenge is that both customers and companies often feel that the new digital asset is viewed as fishy and unethical. For instance, still in the embedded-systems industry, the collection of data around the use of products and the monetization of this data is viewed as wrong and hence the collection and use of data is deprioritized until it’s obvious that everyone in the ecosystem accepts this as the normal way of operating. The problem is that by that time, all the business opportunities resulting from the data have already been captured by others and you’re playing a catch-up game to try and limit the damage to your business.

The third challenge is that by making the digital asset valuable, other, more traditional technologies and assets are made less valuable. This typically affects existing power structures and hierarchies in existing companies. If mechanics and electronics are commoditizing and software, data and AI are increasingly differentiating, we need to prioritize resources differently, outsource technologies that used to be differentiating, reorganize around the differentiating technologies, and so on.

Digitalization brings with it new digital assets that are valuable in ways that for us skeptics and traditionalists are hard to understand and appreciate. Categorically rejecting these new forms of value creation, however, puts you at a significant disadvantage because, by the time you realize their value, all business opportunities have been capitalized on already. Instead, we need to develop hypotheses on how and why new assets might be valuable, validate the underlying assumptions and experiment with these assets to better understand the community driving this forward. In a digital world, nobody can afford to be an analog dinosaur.

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