The Nostalgic Nerds Podcast
The Nostalgic Nerds Podcast, where we take a deep dive into geek culture, tech evolution, and the impact of the past on today’s digital world.
The Nostalgic Nerds Podcast
S1E12 - From Shells to Stablecoins: The Tech of Money
Marc once again drags Renee into a museum. This time the “Hall of Money." Five thousand years of humans trying (and mostly failing) to automate trust. From clay tablets that doubled as IOUs to Renaissance double-entry bookkeeping, colonial funny-money, credit cards born of embarrassment, and machines that now pay each other while we sleep, this episode follows money’s long journey.
Along the way: Marc confesses his favourite room at the British Museum, Renee recounts the chaos of American “Continentals,” and both realise the future isn’t about moving money at all, it’s about answering the underlying questions of trust.
Couple of notes from Marc - This is a bit longer, but breaking it up didn't feel right. The thread of trust stitches the past, present, and future together and I didn't want to lose that. It's a good listen in any case.
Check out Planet Money - https://www.npr.org/podcasts/510289/planet-money/
Jacob Goldstein, Money: The True Story of a Made-Up Thing - https://www.goodreads.com/book/show/50358103-money
David Birch, Identity is the New Money - https://www.goodreads.com/book/show/22227908-identity-is-the-new-money?ref=nav_sb_ss_1_25
Join Renee and Marc as they discuss tech topics with a view on their nostalgic pasts in tech that help them understand today's challenges and tomorrow's potential.
email us at nostalgicnerdspodcast@gmail.com
Hey, everyone. Welcome back to the Nostalgic Nerds Podcast. I'm here with my co-host, Renee, and we're going to talk a little bit about some fun stuff, very nerdy stuff for me, and it'll be very interesting. And hopefully we'll keep it under under five hours because there's a lot.
Renee:Because there's nothing Marc likes talking about more than payment technology.
Marc:That's right. That's right. So, Renee, you know, I used to live near the British Museum.
Renee:I do know that. Sam and I came to visit you, and you toured us around the British Museum, pointing out all the things that Britain has borrowed from other countries.
Marc:I remember that. Yes. I love the museum. It's great. And there's something that I love in the museum that probably only I love, and I never take anybody there because every time I take the kids there, They just kind of roll their eyes, and then they're off to something else. There's this one hall. I call it the Hall of Money. And it's a bunch of glass cases full of coins and banknotes every era. Each one is a little tiny monument to the same human problem. How do you prove you'll pay someone back? It's kind of neat because it's this whole history of everything that humans have used to pay other people. I just love it. I've taken pictures. I've had, you know, selfies with people from PCI channels. You're such a nerd.
Renee:Like, you are a nerd. Who goes to, like, there's old money no one cares about. Let's really do a deep dive, like, while we're all sitting here. Like, you're such a nerd. I love it. Yeah, sorry.
Marc:I even took a picture once of the cards, because they have credit cards in there. And they hadn't, at the time, they hadn't blanked out the card strip, you know. So I said to a buddy, the British Museum isn't PCI compliant.
Renee:Wait a minute. Wait a minute. Time out. I think I've been in that hall. I think I've been there. And I've spent too much time there. I was looking. Like, as soon as you get to, like, the 70s stuff, like, the very first, like, the very first credit cards. Like, the stuff that was important to me, right? Like, stuff there. Yeah, yeah, yeah. Like, yeah, yeah. I remember thinking, like, oh, oh, look. Oh, oh, oh, I'm a nerd, too. Damn it, man. I'm a nerd
Marc:Yeah, that's, I mean, it's really cool, but the room, to me, the room tells a story about trust and how we've been basically trying to automate that trust for thousands and thousands of years. So, so before coins or cash, there were clay tablets. And I like that room too in the British Museum, but it's, yeah, so that's rooms 55 through 59, just in case you didn't know. And the money room, the hull of money, as I like to call it, is room 68. So, and, you know, just for everybody's benefit, this is written into the script because I had to write it down. But I already knew that that was the case. Like, I already knew that that was those rooms. I used to go to the museum a lot, like a lot. But anyways, on these clay tablets, Mesopotamian merchants scratched IOUs for grain or silver. And you think about this, this is really the world's first ledgers. You didn't need to see the trade itself. The tablet was the proof. So Excel isn't new.
Renee:Yeah, right. Like Excel is not new. Excel was on a clay tablet once, right? There's nothing new in the world at all. That's right. It's like it's Excel 1.0. It's wet clay, right?
Marc:That's right. Every little mark was, you know, carved every, you know, it's a promise carved into mud wax tablets. And, you know, but these clay tablets, they were, you know, and I, okay, look, little side, side thing here, bricks and clay don't last forever, but we still have these things from thousands of years, you know, and that just, to me is just, that's the permanence, right? Of trade, the permanence of a transaction. It's, it's, you know, it's just sort of fascinating, but anyways. The progression here, we won't spend too much time on ancient history. There's sort of a rapid transition from clay to wax and different tablets and writing and that. But I do want to talk about one innovation, if you could call it innovation, that came out of medieval England, and they were called tally sticks. So another type, this is a little bit different. This isn't exactly a ledger, right? This is a way of recording a contract between two people. So you take a stick, you notch the sticks, and then you split the stick down the middle, and each person kept half of the record. And so, you know, and when your transaction was closed out, when both sides had paired together, you could stick them together and see that the actual marks lined up. So you couldn't defraud somebody because, you know, they lined up and it was good to go. So, you know, it was a mechanism of trust. But I think that one's not so reliable, I guess, as a mechanism.
Renee:It's just as reliable as blockchain is today. I mean, that is early blockchain, right? It's like I have a ledger. It's a public ledger. And when we match it all up, we can say that it actually happened.
Marc:There you go.
Renee:It's not a bad idea. Like, we're just making good on that same stick in a new technology era, right? That stick is technology, dude. That stick is technology.
Marc:It is definitely technology. It's a block of wood instead of a blockchain.
Renee:There you go.
Marc:All right. So, look, we can go through, you know, these sort of early ledger systems, but I do want to talk about money here as well. So, when people think about money, they think of fiat, whether it's coin or paper or cash or something like that. So, I do want to talk just a little bit about that. Around 600 BCE, the Lydians start minting coins, so stamped lumps of electrum. And for those that don't know, electrum is a gold and silver alloy, and it's guaranteed essentially by the king's seal. So for the first time, the value isn't about when something is, it's about who promises it's real. And it's an actual thing, you know, the electrum itself that carries the value rather than sticks or clay tablets or something like that. And it's a slightly different view here. It's a mechanism for the transfer of value, not necessarily the record of the transfer of value. So that's kind of cool. Now you can trade with strangers and still trust the metal in your hand. So it's a different mechanism of trust.
Renee:Oh, it's like Twitter, right? Right. It's like Twitter and the blue check. So the king's face is the blue check that I can trust you, that you are authentically you. What you're giving me is essentially backed by a crown somewhere. Right. It's got the king's face on it. I guess he's good for it. That's really I actually find that really fascinating. Right. That we go from proving that the intangible, only intangible because it's like service or something tangible, but the transaction is the thing we cared about, to I have something in my hand waiting for a transaction.
Marc:Yes.
Renee:Yeah, that's crazy. Yeah.
Marc:Yeah, so a lot of times people talk about the coins or minting, and people say, oh, well, the Chinese minted coins, and certainly they minted coins. But before they minted round coins, they actually minted what's called the spade and knife money. It's, yeah, and it's sort of, they're not really knives and they're not really spades, but they're bronze simulacra, basically, of that. So right around the same time in 600 BCE, which is kind of Turkey, the Lydians in western Anatolia, around the same time between 1,500 BCE, the Zhao dynasty is making these spade and knife money. And then a couple hundred years after that, you see in the Qin dynasty, the standardized coins with the square hole in them, which is how they strung them together in that. So that was, you know, basically, you know, that's where fiat currency comes from. These different mechanisms of minting, whether it's bronze or electrum or gold or silver, they all kind of start showing up all within a few hundred years of each other all over the world. Yeah, so it's kind of cool. But, you know, you go from these kind of different materials, you know, as I said, they're not really spades or knives. They just kind of look like it, but they represent values, but different, you know, different materials, same instinct. You have to turn that trust into something you can carry around. So a few hundred years later, China takes it further still because, you know, it's China. They're, you know, they're fast. They're fast. They're bleeding edge. You know, they're innovators here. And they invent paper notes under the Song dynasty. Lighter, faster, and easier to fake, unfortunately. But still the same kind of thing. I owe you backed by someone you believe in. So, you know, that's, you know, it's kind of a rapid crash course history in currency and money. We could spend our, I could spend hours.
Renee:Yeah, I could just listen. But you could spend hours. It's clear, right? I could just sit here and listen. But you could spend hours talking about it.
Marc:So let's take a big, giant leap forward, not because there weren't advances in economic trade and finance, but because the tech stayed so similar for hundreds of years. And, you know, and of course, we're going to hit land in the Renaissance because we're talking, you know, all this ancient history, these fiat currency, all that stuff and ledger technology recording in paper, wood, clay, you know, that sort of thing. But all of a sudden we go fast forward into the Renaissance and Italy, merchants in Genoa and Florence sit behind wooden benches, the banchi, which is where we get this word bank. They invent something far more powerful than coins so take a guess something more powerful than coins I.
Renee:Jarred spaghetti sauce what what man what
Marc:It's it's gonna be it's gonna be very boring here double entry bookkeeping you're right yeah, Okay. All right. So.
Renee:Is this credit debit equals zero? Because that's all Sam does all day. And I can't imagine that that's fun.
Marc:I know. You know what? We should have had Sam on here because he's a finance nerd. And I think that would have been kind of funny.
Renee:So shout out to my husband, who's a finance nerd.
Marc:Yeah. But this is, yeah, double entry bookkeeping. So it's codified by a Franciscan friar, Luca Pacioli. I'm not Italian. You could probably say the Italian better than me. Pacioli. Pacioli. He's a mathematician and he writes this this this treatise summa de arithmetic arithmetica in 1494 so you know the concept every debit has a credit and and the trust mechanism here is every promise is a counter promise and if one side doesn't balance the system itself will basically tell you it doesn't balance.
Renee:Well, so math is the referee, right? So math is holding—you can trust math.
Marc:Right?
Renee:Credit debit equals zero. You can trust math, right?
Marc:You better hope you can trust math.
Renee:I hope, right, right.
Marc:You were in audit for all those years. Yeah, I don't trust math. Okay, so I have to tell you my favorite Hollywood math story, okay? Give me it. So, so I was working at the, one of the places I worked at when I was in Hollywood and, and a producer, a well-known producer, I won't, I won't drop any producer names, but well-known producer comes in and he's talking about Hollywood accounting. And this is where I learned most of it from. And, and he says, he says, Marc, you know, the difference between a good accountant and a Hollywood accountant, the good account, the good accountant will tell you two plus two equals four. And the Hollywood accountant will say, what do you want? Two plus two to equal.
Renee:Yeah, that sums it up.
Marc:Yeah, pretty much. Pretty much. That's how Hollywood movies never make a single penny. Not a penny. Yeah.
Renee:By design, not a penny.
Marc:Yeah. Exactly. All right. That's a whole other episode. All right. But look, double entry bookkeeping. It could be the most important technical innovation and money. And maybe ever I like okay this is I don't think it's it can be overstated here it's, Thousands of years, people operated without double entry. Equivalent value transfer isn't codified. It was implied. And the implication wasn't always as firm as we have today. So you think about those splitting of the sticks, right? And maybe that splitting of the sticks was, you know, three goats and a bushel of wheat or something like that.
Renee:Well— Or back in the day, a daughter.
Marc:Right? And what's the quality of the goods that are traded? You know, did you actually get the value that you wanted? Was it a fair trade? Like none of that comes up in double entry bookkeeping because it's absolute. And it's how every bank on earth today keeps score. All of the so-called digital ledgers, blockchain, any core banking system, all of them are just variations on the same idea. When value leaves one place, it has to arrive somewhere else. And that symmetry is what made global finance possible. Look at the Venetian trade systems, you know, all of the different trade empires over the last, you know, six, seven hundred years. It's all because of double entry bookkeeping. Once you could trust the books, you could trust the trade, even across oceans. So from those ledgers came the great public banks, Genoa's Banco, De San Giorgio, and later Sweden's Stockholm Banco. These are some of the ones that the first to issue paper notes themselves. So suddenly trust wasn't local. It was institutional, transferable, portable. You know, instead of the face on the coin, it's the stamp of the bank.
Renee:Yeah. So in a lot of ways, the bank becomes more powerful than the king.
Marc:Yeah. Right?
Renee:And now it's been, I won't say it's been democratized. That's not what happened. But it has been taken out of the hands of royalty to say, you don't back this, we back this. The global infrastructure is going to back this. And that sets us up for a very integrated banking system. You know, by the time you and I are born many, many, many years later.
Marc:Hopefully many, many years later. But I think, you know, it hasn't changed. Like that stuff, that doesn't have to change that all that much, right? Excuse me. And that's why I think it's a super important innovation process. We don't think about double entry bookkeeping as a tech innovation, you know, but it was a tech innovation, like super critical. And we wouldn't have financial auditing, you know, we wouldn't have trade, we wouldn't have trade finance, we wouldn't have like so many different things. I don't know. Yeah, okay. So maybe other people might say the light bulb or electricity.
Renee:I always say the sewing machine is a really important invention, but, yeah, I get you. Double entry bookkeeping, it might make it in my top five now. Congratulations. It moved into my top five. It was in my bottom five. It's now moved to my top five.
Marc:Okay. So, you know, paper money, paper money is, you know, pretty dominant as a, you know, trade mechanism. We still have lots of coins and things. But, you know, we've kind of shifted where the signature on the paper becomes the new crown, the new authority. And from that point on, the real asset isn't necessarily the metal itself, but the confidence in that piece of paper, that bank, that institution that then can pay that out later.
Renee:Think about the psychology of that, though, because whenever here in America, whenever there's a lack of confidence in the economic, you know, environment or the banking environment, we all run to gold. Like, we still do it. Like, as soon as your confidence dies in that paper money, you run to that metal. It really is buried in our collective psyches, probably from, like, that DNA back then, that if it's not tangible, it doesn't mean anything. And so I need to go with tangible because this thing's about to mean nothing. Like, that's really amazing that we can find the roots of that all the way back in the Renaissance.
Marc:That's amazing. Yeah, yeah, definitely. I know, it's pretty cool. And even back when, you know, 600 BCE and Electrum, you know, it was intrinsically valuable because it was stamped on something that somebody wanted to make jewelry out of or, you know, whatever. Now it's, you know, gold teeth and grills and, you know, bling. Bling.
Renee:I was going to say, and bling. Yeah, I get it.
Marc:And bling.
Renee:All right. Well, so I still live in America. So let's talk about what a mess, a mess, the 13 colonies made of this idea, right? Every colony issued its own paper notes. Some were backed by gold, some by land, some by just, you know, hey, good vibes. That would be California. Good vibes. Okay, they weren't one of the 13 colonies, but I can see it happening.
Marc:And a prayer, right?
Renee:That's what we're going to base it on, right? You could cross the river and your money was worth nothing. And did they have money exchanges? Like, could you cross the river and find some guy who would exchange your money for you? Could you do that?
Marc:Yes, yes. But... But it's the trust problem, right? You cross the river and there are definitely exchanges. But if you can print your own promise, right, the fragmentation of trust increases. So it becomes – and then how do you guarantee a rate? What's a fair exchange value between Virginia paper and Maryland paper? But yeah, there was no train.
Renee:Like, good thing you couldn't actually go anywhere because that would that would become a problem, wouldn't it? Like, there's no easy way to get anywhere. So maybe it was OK for a while, but it wouldn't be OK forever. Right. I mean, you if you were if Georgia was going to sell peaches to Pennsylvania who had lumber, like you were going to have to figure this out. Each of those merchants had to figure out a way to make that work.
Marc:Yeah, yeah, yeah. You know, they'd have to get paid somehow. Now, they want to get paid in crown, you know, in gold. And then they would, you know, ship their goods and all that stuff.
Renee:Okay, so this is the time of the Revolutionary War, right? These are the colonies. This is where we're trying to find our freedom. And in that, people were hoarding foreign coins. So Spanish dollars, British pounds, anything that actually held value. And when the United States issued Continentals to fund the revolution, nobody trusted them. Because why would you? Why would you? Here's a bunch of guys being like, no, seriously, give me money. We're going to go against the king. It's totally worth the investment. Like, can you imagine? I couldn't even imagine being like, yeah, you know what? That sounds fair. I'm going to go ahead and back that. No, no. You would want to be able to actually buy things one day, right? Yeah. And they depreciated so fast that not worth a continental became an insult, right? So like, hey, I got a horse. Yeah, a horse isn't worth a continental. Like, oh, dude, come on.
Marc:You don't need to be that harsh. Sick burn. Yeah. I mean, you can't mandate trust if you have to earn it. So the larger, more credible banks, state banks, and then eventually the first bank of the United States, thank you, Alexander Hamilton, step in to centralize that promise. The architecture of modern banking begins around one simple question, who keeps the ledger itself honest?
Renee:So whether it's a king, a banker, a startup with a blue logo, right? We're still buying the same thing. We're buying credibility. That's, when we say it like that, it seems so super sketchy.
Marc:Super sketchy there's a there's a book i'll have to put this in the show notes but there's a book i got so my daughter the artist daughter and i when i would drive her to school we would listen to a planet money great podcast yeah great podcast for money nerds, And one of the guys, I think is Jacob Goldstein, wrote a book. It was called Money, the Story of a Totally Made-Up Thing or something like that.
Renee:That's a good title. Yeah, it should be that.
Marc:It is. Yeah. So I'll have to put that in the show notes. But I highly recommend that book. It's a great book. So, all right, let's move forward because we're in revolutionary times. Then we get, you know, centralized banks. And let's move to the early 20th century here, where trust actually shrinks back down again. So cash and, you know, checks backed by banks, these are dominant payment methods, letters of credit start to become, you know, more useful and distributed to more and more people and more accessible, I should say. And this is where I want to start to talk about the rise of store credit. So you've got these kind of store credit systems, essentially chalk marks behind the counter, IOUs and the till, right? So you go into a local mercantile and you say, you know, I will gladly pay you Tuesday for a bag of grain today.
Renee:Right.
Marc:And then they take that, you know, on credit. No bank, no government, and it's just reputation and the shopkeeper's memory. And if you didn't pay your tab, that grocer or that general store, your mercantile, whatever, they didn't need a collection agency. They had gossip.
Renee:Oh, it's like when your check bounces at the— Did you ever see that episode of The Office where Dwight is looking for Michael and he goes into the Chinese restaurant and he's like, did you see this guy? There's a picture of him on the wall because he ate grand. Like, that's what it is. And Dine and Dash, like, I can't get you any other way, so I'm just going to embarrass you in public, right? I'm going to post your photo.
Marc:Yeah. And I've seen that even in practice here in the UK, there was our corner, our local store, our little corner shop in the village we lived in. They were on the, on the glass, you know, in the, in the. In the store, they would take pictures of people that shoplifted and then post the pictures of the people on the glass with the caption, I'm a thief. Wow. Yeah.
Renee:Old habits die hard over there. I'm just going to say that. I guess so.
Marc:Yeah, yeah. So, clay tablets to paper, right? Promises to grocery tabs. The tools are changing, but the message doesn't, right? Do you trust me to pay you back? All right. So if that question never changes, we just keep inventing new ways to say yes, right? There's new innovations around money all over the place. So let's talk about a little bit further in the early 20th century. So we've mastered the promise, right? The next question was, how do you move the money? So we start to build these different rails to move money around. Checks, postal orders, gyro transfers. They're all designed to send promises instead of people. Okay, a little joke. How do you actually manage cross-border payments today? Yeah. You stick a bunch of currency in a bag and you send somebody across the border. Like forever, that was how you managed trade and balance. You literally had to, you know, get currency and then you stuck it in a bag and you took it across the border.
Renee:Like the Pony Express, you were just like, dude, good luck. I hope nothing bad happens to you. And if you lose this money, don't come back.
Marc:Like that's several minutes.
Renee:Wow. Yes. That's kind of adorable though, right? A whole economy powered by written notes that had to be physically carried across town. Honestly, that's the first UX problem then. That user experience is just really bad. It's slow, and it's always missing the last signature. That's just terrible. What a terrible way to do business.
Marc:But if you think about it, like, okay, you're trading this piece of paper around that says at some point you can redeem it for gold. Okay, well, somebody's going to want that gold at some point. Right. Especially if you put that piece of money into another bank and the bank says, well, I can't just hold paper. I actually have to hold reserve. So at some point they have to take that piece of paper and they have to ship it to whatever bank it is that issued that and then say, give me my actual gold so they can transport it back to their vault and then stick it in a vault. Like that's cross-border currency exchange right there. And that's how it happened for centuries, even to this day that happens. Even to this day that happens. Wow. All right. So, I'm sorry. Sorry, again, a little nerdy here. So, anyways, my mid-century cities like London and New York had literal armies of clerks sorting checks by hand. Basements full of paper, each sheet just a little tiny act of trust in transit.
Renee:It's like manual fintech. Like, you fintech guys think, like, you're the bleeding edge. This was the bleeding edge. We had paper checks and lots of people.
Marc:Paper checks. I even.
Renee:Even during my time, it would take 10 days for a check to clear. Because it had to go through all that stuff, right? Like, y'all getting direct deposit and it's in your account the next day. You don't have any idea how lucky you are. Like, you have no idea. That's not how it used to work.
Marc:Right. I know. Like, I'm trying to remember, boy, when did I have my first, like, direct deposit check?
Renee:Not until after the ATM machine. And that was in the 80s.
Marc:Right? Yeah, yeah, yeah.
Renee:Yeah, so it comes after that.
Marc:Yeah. I mean, I was probably, it was probably after my wife and I were married. Yeah. Yeah, actually, I think that my first, like, real gig, I would get paper checks. And it was at that place. I'd worked there for a few years. It was during that time. And this was, like, the late, mid to late 90s. You know, that was when we transitioned to direct deposit while I was working there. So, we didn't get, like, when I first started working, I'd get a paper check. Right, and you would put on the back for a deposit only.
Renee:And if you had an ATM nearby, you could deposit it in the ATM.
Marc:Yeah, yeah.
Renee:You didn't have to take it into the bank, but before then, you'd actually have to walk it into the bank, have a deposit slip that you filled out with your account number on it. Another piece of paper. Yeah, have all that paper to somebody and they'd say, great, it's going to post in eight to 10 days. Like, fantastic. Yeah. Yeah, that's the world we lived in.
Marc:Yeah, that's definitely the world we live in. And I think that's, it's acceptable, right? You know, because of the technology of the time. Yeah. But it's, it's not, but it wasn't, it wasn't. It reached a certain scale, right? That industrial scale, but there was still friction in the system. So the next kind of question, right? Like we're talking about the 80s and the 90s. Sure, there are big systems and we'll talk about some of those in a second. But, you know, the economy still operated on paper, checks and check slips and deposit slips and that sort of thing. And so the obvious question is, what if you could automate those things? Like, this is a common theme, right? We talk about this all the time is, you know, there's a piece of technology. It does a certain thing. And then you automate that thing. And that's what starts to happen in, you know, in the economy, whether that's, you know, with checks and paper and ATM or with credit. So let's talk about let's talk about credit.
Renee:Yeah, it's because it's my favorite part of the story. And it starts with a guy forgetting his wallet, which, you know, I'm not going to say it happens a lot. Well, you know what? I don't even know anybody carries cash anymore. She forgets his wallet. In 1950s, businessman Frank McNamara can't pay for dinner in New York. Out of that embarrassment comes the diner's club card, right? A cardboard charge plate that lets you pay later.
Marc:Well, we just talked about, you know, humiliations, you know, public humiliations.
Renee:Is a good catalyst for innovation. How do we innovate? We suffer humiliation. Yeah. But the best ideas start with panic, right? Within a decade, you got Bank AmeriCard, Master Charge, American Express, reputation turning into infrastructure. And I think that changes everything. For me, that is just a big of a change as double entry bookkeeping.
Marc:Ooh, easy now. Easy. Oh, don't throw down. I think... I think that's probably true in those markets that accepted those things, not because it was sort of cool and innovative, but because it – how do I say this? It provided a scale.
Renee:Yeah, there you go.
Marc:And if you think – again, this is the common theme, right? People still need to pay for stuff, right, whether that's 1,000 years ago or today. And what these systems did was they mechanized that payment and made it scalable and faster and, you know, theoretically less expensive to process the actual act of processing that money. So the rails get faster, right? But the logic doesn't actually change. That level of scale is really what was felt in the Western world. Certainly in the States, Western Europe, parts of Asia, huge innovations there. So, let's talk about the 70s, right? The 70s, the decade I was born in. There you go. Yeah. Money moves by wire instead of by hand. So, yes, all of these things, check and paper and all that stuff, there's a handwritten element. But once it gets into the ledger, right, there's a process to put it into a big computer with tapes and reels and green screens and all that. But before these sort of national systems we know now, in the states, each of the 12 federal reserve banks ran their own clearing and settlement networks. So basically 12 different machines, schedules, codes, all of that stuff.
Renee:So 12 different bureaucracies, right? And somehow we have to coordinate all that in order to, I would assume, close with the Treasury every night. I mean, we still have to deal with the Treasury of the United States and with 12 different people doing things. I mean, you and I did IT support. Can you imagine like 12 different kinds of computers in the environment with 12 different kinds of laptops and phones? And like, it just makes mayhem. It's absolute chaos and mayhem. So what you're telling me is like the 1970s from a money moving perspective was just complete mayhem.
Marc:Yeah, very regional, very regional, which is why, you know, you didn't see a lot of national bank, bank chains in the States. You know, check volumes themselves were exploding because it's a convenience factor. It's easier to write a check than it is to carry around cash. You know, they started to automate these, these check clearing systems regionally. You had, you know, things like in California, there was a bunch of California banks that built their own electronic payroll experiment. They called it SCOPE, the Special Committee on Paperless Entries. They had a special committee on paperless. Like, you know, think about today, you know, everything is paperless. But back then, you had a special committee. The Fed saw that it was working and realized that, you know, the real bottleneck in the system wasn't paper. It was the silos, the individual banks. So eventually, the Fed systems were stitched together under one operator, the Richmond Federal Reserve Bank. And that's why all of the technology today sits in Richmond, basically. If you go to the technology organization at the Fed, they're all in Richmond. And by the mid-70s, the National ACH System was born. So ACH stands for Automated Clearing House. It becomes kind of the quiet plumbing thing. Of U.S. payments, the reason your paycheck appears in your account instead of your mailbox, sort of.
Renee:And you know what? No one ever notices that unless it fails. So it's like, can you imagine, like, I was supposed to get paid. All of my rent needs to come out of that payment. And like, and it didn't go. It didn't go. Like, why did, are we bankrupt? Are you stealing money? What, what, can I sue you for it? What is going on here? Right. And so this idea that the guarantee that that check goes into that system or that transfer goes into that system and it's going to go to the right people at the right time, that was all designed to be good. And you're right. No one ever notices until it fails. If it fails, everybody screams and yells and carries on. And the other thing, I would say this, the other good thing about it is, if you are the reason it's failing, you keep writing bad checks, they'll arrest you, put you in jail, forget putting your face on the window. You're going down for grand theft, right? I mean, it is a good mechanism for, you know, people who do ill things. But if I'm just a law abiding citizen who's waiting on a transfer from my bank and I don't get it, like I would be seriously worried about that. And I would wonder if I was sitting there in 2008 all over again.
Marc:Did you ever go to the grocery store with your parents, and did they use those check guarantee machine things?
Renee:No, but they would just write out a check at the grocery store. That's why the grocery store has that little ledge there. It used to be where you wrote your check. Now you just hang there like when you're bored, but it used to be where you wrote your checks.
Marc:That's where you write your checks. And your two forms of ID.
Renee:You had to bring two forms of ID so they knew that was really your check.
Marc:That's right. That's right. Well, in California, this might be sort of the aftereffects of that scope thing. But I remember when I was a kid, we'd go to Alpha Beta. That's where, that was our local grocery store. That was the name of the grocery store. Alpha Beta. And there was a little, like, terminal, essentially. So if you knew you were going to write a check, you had to get your check guaranteed first. Oh, we didn't have this. Before, yeah. And I wasn't sure if it showed up on the East Coast or not. No. Oh, definitely on the West Coast, because, you know, there's a bunch of deadbeats, you know, writing bum checks in Los Angeles.
Renee:And Los Angeles is a big place where people can do that. And probably I was in Pittsburgh. They really were putting your photo up on the grocery store still. Right.
Marc:Probably. There's probably a much more local feel for some of the neighborhoods that you were you were in versus mine. But, you know, there was like a terminal. And if you knew you were going to write a check, you had to, before you were checked out, like, so you don't know how much or anything like that. And it didn't really matter because they, they kind of worked on average ticket size and stuff like that. But so, so there was like a little box that. And it looked like it had a phone on it. And you basically, you put some numbers in. I don't remember exactly how it worked, but then you slide your check into the system. And it had a micro reader, which is the magnetic code reader, which would read the magnetic numbers. I don't know if people know this, but the printer ink on checks is magnetic. I didn't know that. Well, there you go. Technical innovation. And it's a special ink and, you know, toner and all that, whatever. But it would read that stuff. It would then transmit a message to this check guarantee service. And the check guarantee service would be like, ah, I'm going to check to see if that check account, those account details have been used in a bad check. And if they hadn't been, then, and I think that there was a second, you know, kind of look up to a bank to see if you had available funds and stuff like that. And then it would literally print out on the back. It would go, dot matrix, you know, thing. I remember that, right?
Renee:It would run through a machine and be like, pop out the other end. Yeah.
Marc:Yeah. And then it would have like a guarantee stamp on it. And then you would take that check to the checkout stand when you were ready to check out. And then it was already checked. And it had already done the driver's license thing. And it had already done all that stuff.
Renee:I think we did do all this, but you did it at the register. Ah, yeah. So the person at the register took your thing, ran it through this thing and like came back out and then they would be like right on it. And then, you know, but you already filled it all out and handed it to them, I think is how that worked.
Marc:The whole point of that, it wasn't that like it wasn't a check process. Right. It was a trust process. And that's what, you know, like checks were getting checks were starting to degrade even at that period. You know, when I was a kid, you know, mid 80s or whatever, checks were starting to degrade from a trust perspective. And I think that sort of set us up for this really, you know, explosive time around cards, but sort of a unique American thing. But in lots of other countries, they had their own kind of system of rails and systems of trust. So you had what's called BACs in the UK, EFT Paws in Australia, the Giro or Gyro networks in Germany and the Netherlands. They're all chasing kind of that same idea. If you can trust the network, you don't need to trust the courier.
Renee:It's another scale problem, right? Right. I can handle 15 of the buckets, but I don't want to handle, you know, 22 gallons of water one handful at a time. It makes perfect sense. It makes perfect sense.
Marc:Yeah, absolutely. Well, gosh, man. So a little side story here. Coins. I hate coins because the scale, coins are not scalable. So when I was at various banks, I had to manage, I had all the ATMs for HSBC and I had all the ATMs for version money and coin machines, freaking, you know, the British government says, you know what? You need to have an ATM that takes coins.
Renee:Oh, you mean like the British pound, like that?
Marc:Like you've got to be able to deposit coins into an ATM machine.
Renee:That's craziness, right? It is.
Marc:It is craziness. It's freaking crazy.
Renee:It's not my fault you don't have a $1 bill. Like, that's not my fault. It's not my fault.
Marc:It's not my fault. Well, but those things are expensive and they don't scale. And yeah, well, and they're heavy and somebody broke the concrete floor of, you know, one of the branches because they dropped a, you know, stupid coin counting machine. Anyways, yeah. But, you know, basically, you know, we have these kinds of, you know, national systems. But in the 80s, America's money itself gets kind of split into these two completely different tracks, okay? So ACH rails, which we talked about, you know, these kind of national big, you know, rails, they handled these kind of quiet, predictable flows. Payroll, mortgages, utilities, right? Your bills. People paid their bills with checks. They're all processed with batch and, you know, paper process systems. There are across enormous mainframes with the Fed and all these different clearing banks. And then meanwhile, you know, quietly, St. Louis and San Francisco, the card networks are kind of exploding across retail. It's faster. It's visible. There's branding. There's consumer branding, lots of consumer branding spend. And it's driven by that consumer spending and the brand trust, right? Do you remember the commercial? I think it was Visa, the check card Visa commercials. Where, you know, they would ask for ID or something. You know, there's all these famous people, and they asked them, Steven Spielberg or whatever, and he'd look at the camera like, what are you talking about? I'm giving you my check card. You know, I don't need ID. Because you used to have to submit ID with a check. Yeah, you did, with a check. With a Visa check card. It's your signature, you know, and off it goes. but you know this this they're kind of built for different sorts of use cases ach was all about that reliability and scheduled certainty and cards were about flexibility and instant gratification so there's kind of two different technologies but both are solving that same kind of problem how to make the or how to move trust faster than the paperwork itself.
Renee:And that's exactly how it felt on the other side of the counter, right? Because I remember getting my first direct deposit for the first time. That was ACH. It was almost magical. It just appeared like, oh, my God, it's Friday. I have money. Like, that's how it felt. Like, magically, I can go out tonight because I have money. Everybody, and I feel like when you swipe the card at the store, people didn't trust it yet, right? I remember having my first, we called them Mac cards, like machine access cash, Mac.
Marc:Yeah, there you go.
Renee:The Mac card, you could have a Visa Mac card. Well, now you can use this card anywhere you wanted to go. So I can go to the Gap, use my Mac card. I don't have to go to the machine and get the cash. It's a Visa card. But that money came out of my bank account, not from Visa.
Marc:Yeah, yeah, yeah.
Renee:Right? And there was a whole generation that didn't trust that. They were still bringing the checkbooks, right? But then my generation was like, forget it. I'm never writing a check if I don't have to. What came with that, though? The same mechanisms for, because we don't have online banking yet, right? Like we just have a card that can just take money out of an account. So if you're not keeping track of that in your check ledger, you're in trouble because you can overdraw it and they will let you and charge you a ton of money for it, right? And so like those kind of things, I think, were just like... I can carry this around. It can give me access to my money in a way that I never had before. And it was sort of like magic, but it would fail me if I didn't have enough money in my account. But it would only fail me after I took all the money out of the account plus$50 because then they could get me with an overdraft charge. Because all the things about the checking account still apply to that checking Visa card.
Marc:Yeah. Instead of writing a bounce check, you could still get your stuff at the Gap, but then you get charged three times the amount or whatever. And you had to keep that receipt.
Renee:Dude, you had to keep the receipt because you had to go, my dad to this day, even though he has online banking, will still take out all the receipts, do all the math. Because he feels like, and it's a good control. I'm not going to lie. It's a good manual control. Yeah, it is. It's I know what how much I spent and my online banking should say the same thing. I think Sam and I are just like, online banking's right. Like, I don't know if we should trust it like that.
Marc:Trust is not a control, Renee.
Renee:I know that. And luck is not a strategy. I get it. I get it.
Marc:Yeah. It's funny. Like, how many times have we said that? Trust is not a control, right? But we trust the financial system so much. We do. So much. And I think that that trust is developed because the technology has been so reliable for so long. And, you know, every time there's a new innovation, it just takes a little bit, you know, to develop that trust. But, you know, that like ACH is about building confidence, that invisibility. Cards is that confidence and convenience, but underneath it, it's all settled through the same sets of rails, two rails, one financial truth at the end of the day.
Renee:And we should say, all this talk of ACH and cards is a very American story. But the rest of the world was building its own rails, too, right? Like, as we're over here innovating, the rest of the world is doing what it needs to do in order to meet these things.
Marc:Yeah, yeah. In Europe, and I won't go through all of this stuff, but Europe, you've got, you know, Bax in the UK, Jio, you know, mentioned some of those France, SIT, and eventually get SEPA, single European payment, something or other. I should know that. But yeah, you've got all those sorts of things in Europe.
Renee:And in Asia, the modernization came fast once the technology did. So Japan's interbank networks in the 70s, Hong Kong's chats, Singapore's fast, and later Alipay and WeChat Pay, turning phones into wallets. And I think that's where I find my sweet spot. I'd buy anything on my phone. I'm terrible. Ask my husband. I'm terrible like that. I had to take Amazon, the app, off my phone.
Marc:It was too easy to.
Renee:Slide to buy.
Marc:Yeah, slide to buy. I don't like slide to buy. I don't like slide to buy. Latin America went its own path. National Clearing Houses like SITRAF in Brazil and SPEI in Mexico. So all of this stuff kind of develops all over Latin America in different ways.
Renee:And then you all across, I don't, how do you, how do you say his acronym?
Marc:Middle East, Northern Africa.
Renee:Oh, I don't hear it that way. Oh. I don't ever hear it that way. All right. Well, that's fair. You've got traditional bank networks alongside new real-time systems in the Gulf and huge mobile money ecosystems in places like Egypt, Jordan, and Morocco that blend telecom and finance. And I think that, especially when we talk about the continent of Africa, I feel like Like, Africa comes into, with that, I mean, talk about a place that just completely missed the whole wired network thing. Like, they didn't even bother doing it. It's like they went from nothing to cell phones everywhere. Like, the wireless thing. And they have to. That infrastructure is just easier to do than burying a bunch of cables, right? They never went through that infrastructure thing. So, to see them do that, like, of course, it's a blend of telecom and finance. That's how it would work for them. And, yeah, it makes sense that that happened for sure.
Marc:Yeah, anytime we're in Morocco, I mean, I got 4G.
Renee:5G all throughout the country. Yeah, isn't it amazing? Yeah. That's awesome. They do everything that way. It's amazing. Yeah.
Marc:So lots of different regions, different problems, but they all kind of build these rails that let trust travel faster than people could walk it, right? So it's the automation, the mechanization of movement of money. And I think the key here is that even though the methodologies of some of these systems might be different, and you have kind of interoperability issues in some cases that need to be hashed out by things like CEPA, you have the same concepts of trust and, and, Renee, my favorite, double entry. I'm going to get paid, and you're going to get your stuff. And when the books settle up, we're both happy.
Renee:So by the 1980s and 90s, the rails fade into the background. ATMs, online banking, early e-commerce, all designed to make paying invisible. And when you stop feeling money leave your hand, you stop treating it like it's real. And you think your liquidity is so, so vast and deep. It's not. And then your habits become so ingrained in that it shouldn't be. And I feel like we're to blame. Marc and I are fully to blame for this.
Marc:Yes, we are totally in the plan.
Renee:We were the ones that convinced you to buy cookware online. Like, it's all our fault.
Marc:Let me apologize now.
Renee:Just so I can one day go to heaven. I'm sorry that I got you used to buying cookware online. And it's true, though. I feel like, you know, to me, money is an abstract concept. And I knew when it was real. And it's still, these days, it seems like an abstract concept. And I can't imagine being born in 2000 and living your life in this commerce environment and thinking the whole time it seems like an abstract concept. It's what you've always known, right? You don't... Yeah. A lot of... I don't have money in my wallet ever. Yeah, don't mug me. Like, just generally speaking, don't mug me because I never have any casts.
Marc:Ever. Okay, so, here's my wallet and I've got... I've got actual plastic bill notes here because they're plastic here in the UK. But you know what? I've carried these same bills around for like six months now. So, you know, I never spend it.
Renee:Just in case the ATM fails and you need a cab. Like, that's why you should carry cash, right?
Marc:I normally don't, but it just so happened that, like, it just was in my wallet. So, yeah. But that physical proof of payment, the note, you know, whether it's a plastic one I carry around my wallet, the receipt, you know, whatever, the handshake, they get replaced, right, by confirmation screens, the dopamine hit of click to buy, add to cart, add to art, you know, click, click, click. And that itself becomes its own currency.
Renee:Exactly. And that tiny buzz of convenience, it changes behavior more than any interest rate ever could. Once it feels frictionless, we start to believe it's effortless, right? And then just doing it is just like, I mean, my gosh, you should see me shop for groceries. I haven't been to a grocery store in like 15 years. It's all online for me. I roll by the place, I chuck it in the car, and I keep driving. Like, it's not, I haven't done that in so long. Like, there is no, I don't go grocery shopping. hand like put my chip in that i don't do any of that i just it's all so
Marc:Oh interesting you so we have it delivered so you you drive and drive by huh drive by.
Renee:Yeah i do the drive by thing at target you just pull up you say i'm in law i'm in spot two you know what their turnaround time is for that like from the time i pull up and say i'm in spot two they got two minutes and two seconds to get it to me which is way quicker than if you go in that stupid store stop for yourself and then standing that line for 25 minutes, right? So I always, I almost never go. And that started during COVID and they just kept it. And then so I started doing it during COVID and I too just kept it, right? It's just, it's more convenient that way.
Marc:You know, there's an interesting thing, you know, we'll probably get to this in some other topic, but convenience shopping has a different spend pattern than regular everyday spend categories, right? You know, you walk in, you're just sort of, you know, conveniently their casual buying maybe is another way to say it, right? So Target is in that sort of everyday spend category, but also in that casual spend category. So when delivery happens for them, or, you know, the sort of, you know, build your basket and then check out, you drop it in your car, that casual spend category drops for them. And, but then the, that everyday spend category is increased yeah yeah so you know but the higher margin is on those casual spend categories.
Renee:You've got me in the store and i'm looking at end caps and all of a sudden i'm like oh i need another dog toy and i don't yeah i'll buy it anyway right yeah that's exactly it's why i don't do it like i and as a matter of fact i could just do it on and just to bag target one more time the online app is so bad that if it were any better i'd spend way more money like just like just the target just for renee keep it as bad as you possibly can i like i just shop what i've already bought and we're good you and i are good right
Marc:That's interesting. Some other time.
Renee:We should talk about that. The evolution of the buyer. Like, it definitely has gone from, you know, somebody came to your house to sell you something to you went to a store to buy something to you went to a mall that had a lot of stores in it to buy something to you went online. And now, you know, who knows where we're going to go next?
Marc:Oh, virtual malls. That's right.
Renee:We'll have our
Marc:VRs walking around the mall again. Do you remember that? Do you remember that? What was that place mall something wasn't it virtual ball something like that is.
Renee:That what it was
Marc:And didn't they yeah yeah yeah oh my gosh i was just like remembering the early.com you know and there was that that site that was like that i i swear it was the first marketplace, essentially based you know it's like okay it took a bunch of online retail stuff and stuck it in one Get.
Renee:All in one place. Oh.
Marc:Because the idea was that the internet was a digital manifestation of the physical world. And so if you had malls in the real world, you would have a digital mall. And they didn't last long because it's sort of a flogged.
Renee:Because it wasn't hard to type www.gath.com, right? Exactly. And then save the bookmark. That's not hard. I don't need to go all in one place. Anyways.
Marc:All right. So let's come back to our money story here. Banks are trying to kind of scramble to keep up on all of this technology here. You have on the card systems, you have acquirers, issuers, gateways, all of these different pipes that are all complex and almost no one can see the whole system. But underneath all of this, it's still the same ledger logic. Value leaves one place, appears in another, and someone has to keep the books balanced.
Renee:Meanwhile, we're just hoping the Wi-Fi doesn't cut out mid-purchase. I think this is a big problem, reliability, right? This idea that it's always there. I mean, AWS just went down like on Monday.
Marc:Oh, I know. Oh, my gosh.
Renee:Okay. So Monday, I'm driving to a conference and I'm in the middle of the mountains. So if you go, do you know where Idlewild is? Yeah, yeah, yeah. Yeah, okay. So before you get to Idlewild, you hang a left and you can go into Anza and then eventually to Macula and then you can end up in San Diego. That's where I'm driving. At that fork in the road thing, there's a little restaurant. It's called Paradise Valley Cafe. And I've never been there. Totally wanted to stop. Walk in and she's like, I got to tell you something. And it's okay if you walk out. And I'm like, all right. She's like, systems are down. I can only take cash. I'm like, we're good. And she's like, all right. And so me and my mom and sat down and everything. And she's like, oh, hey, for absolutely no reason, it's back. And she's like really angry about this whole thing. She's like, I lost so much business and I still don't know what happened. And that's when my phone ding and said AWS went down. And I'm like, can I tell you something? And she's like, what? I'm like, you were a victim of a cloud outage. And she's like, well, how? And I'm like, good question. Let me just explain it. The cloud is just someone else's computer. And it crashed, right? And so like, yeah, like reliability is the most important thing when we're spending money or we're moving money or we expect to see money. Like, honestly, if I didn't have that money in my wallet when we walked in there, we would have to turn around and walk back out because we wouldn't have been able to pay with a credit card.
Marc:Yeah, talking about Amazon is a good way to transition here. We're talking about essentially entering the era of outsourced trust, right? As so many people have trusted AWS, you know, our wallets, our banks, networks, all of the clouds, all of this stuff, it's all outsourced trust, essentially.
Renee:And we don't verify the math anymore. We trust the logo, the lock icon, the brand name, the vibe. That's like the trust verification label on the bottom of the website. It feels legitimate, and we assume the money is moved, right?
Marc:Yeah. I mean, this whole AWS thing is...
Renee:I hadn't realized how much of the world's ability to transact would be stopped in its tracks. Yeah. Like because of an AWS DNS problem. I mean, don't you think we should have had DNS figured out 20 years ago? I felt like we were kind of on the road to figuring that out.
Marc:No kidding. Like I saw crazy stories where people's like water, they have like a water filter thing, you know, that just filters water on their desk and it wouldn't work.
Renee:Like people's beds wouldn't change. Like if you had one of those like, right, if it was connected to a cloud for whatever reason, if you connected your stupid washing machine to the cloud, you couldn't do anything with it, right? Like this whole idea that the cloud is infallible and that network fabric is so resilient. I'm not going to lie to you, man. I'm an analyst. I've sat down with those guys and said, here, there's a thing in physics that actually says, it's a theorem that says if it's physically possible, it's inevitable. And here's what they would say to me. Renee, we understand you used to run data centers and all that, but I don't think you understand how resilient this is. I'm like, I don't think you understand that the most resilient car engine still runs on one belt, right? That's right. Everything has single points of failure. I don't care what your fabric looks like. Like, you take down two substations in the grid, take down two substations in the grid, and none of us have anything. Like, so why do you think you aren't part of this? And I'm just going to say it because I'm a jerk, and I'm an analyst, and it's my job. But the arrogance of that is almost hard to take.
Marc:Yeah, well, especially on a service like DNS, which is this is not the first time that the interwebs have felt this kind of massive impact because of DNS, whether that's a cloud flare thing and or DNS poisoning is an attack thing. You know, I mean, it's just it's a big thing. It's a big deal. I don't know. It's very, you know, we talked about this in the in the amusement park episode around fail safe. And I feel like designers of products today that rely on cloud rely on things like AWS. They're not. They're not failing safe.
Renee:You know, no, they're not. You're right. You're right. Oof. Like, should the backup to that stuff be in your own data center again? Like, should you, like, it's okay if you do most of your stuff, but like when you do your business continuity and disaster recovery plan and that stuff that you'd have to do that has to happen no matter what, maybe the fail safe for that should be in your own environment again, right? Like, I don't know how else, wouldn't it be hilarious if we go all the way to the cloud just to come back again? But we've done it before, Marc. We went all the way to outsource IT just to bring it all back again. And like, I mean, maybe maybe there's some hybrid version of that that protects you from this. It's yeah. Maybe because when you lose trust, like I'm a bank, no one can transact. No one can get their money. No one could spend their money. They can't do anything anywhere that it erodes your trust, even if it's not. Even if it wasn't Chase's problem, it's now Chase's problem.
Marc:Exactly. Okay, so I worked with a bank in Asia, and they had a very public failure a couple years back, and that's how I got involved with these guys. And, you know, one of the things was that people couldn't log in to their mobile app because they had an authentication problem. Okay, so one of the questions I asked the board very early on was, what were the psychological impacts to your customer base? Because the psychological impact, essentially the question that you have to kind of ask and answer is if I can't log in and look at my balance, do I actually have the money?
Renee:There you go.
Marc:That's it. Like I'm a customer. I can't log in. I can't see if the money is there. Does the money actually exist? And when you put it that way, and that's, and that's literally what people were like they're calling they're wondering like i don't see my money what happened, It's a big, it's like, that's the erosion of trust on the other side, right? You know, we trust so much. It's all become so effortless, so invisible, so, you know, just simple, you know, from a consumer perspective. But then when something goes wrong, it's existential.
Renee:There you go. There you go. You didn't, and people, if you, there was a study done that's like when we were going through the privacy stuff, like what data is more private? People were asked, which information do you consider more private, your health information or your financial information? And they said, 75% of them said, my financial information. So even that psychological thing is what you're trying to get up against, too. Like this idea that I trusted you with everything I have. Everything I have, everything that makes me able to live in this world, you have it, Bank of America. You have it. Like, yes, there is a psychological toll that takes on you. And next thing you know, you're taking out all this money and shoving it in a mattress and burying it in coffee cans out back. Like, that's how it works. That's how people get that crazy.
Marc:Yeah, yeah, absolutely. Absolutely. All right. So let's kind of move forward here. Money isn't the problem anymore, right? Whether it's fiat or checks or paper or whatever, that's not the problem. Money, it already lives everywhere. It's in wallets and apps and the chip on your card and the cloud behind your phone. You can manifest it. You wave your wrist around. All of the mechanics are done. You know, frankly, I'm kind of tired of people that profess the future of payments as some new conveyance technology. Like, okay, that's nice, but so what, right? It's not really a meaningful thing. It's commodity thinking. All that's happening is that the mechanisms get, you know, automated and scaled. And that's the only improvements are in the reliability factor. I think that the AWS thing is a real lesson here, but it's all been done, you know?
Renee:So the pipes are invisible now. You don't even think about the rails or who's holding the money in between the taps. You just know that double ledger works at the end of the day, that I bought it, it came out of my account, I got my stuff, you got your money, we're all good, right?
Marc:Yeah, what's left isn't the tech problem. It's the trust problem, which is what we've been talking about. All these new payment systems, digital wallets, APIs, crypto... Crypto, embedded finance, autonomous agents. They're all looking at the same thing. How do you prove a promise when there's no human left in the loop? So we're going to move into the future here.
Renee:Let's do it. The challenge isn't that money's digital, you guys. It's that the trust went missing when we started using the apps, right? Like, you know, I think that that's kind of what it boils down to, right?
Marc:So, yeah, for 5,000 years, trust lived between people. I give, you receive. We both know what just happened. So now machines are doing the giving and the receiving. And the humans are standing outside the transaction, hoping the code got it right. So we've already started down this path, right? Cars pay tolls. Do you have one of these smart fridges? I don't know.
Renee:You know, some things don't need to be smart. My fridge is one of them.
Marc:I know that there are smart fridges that actually reorder groceries, but I just can't. I just can't. I don't know.
Renee:You ever stay in Vegas where you accidentally move something from one shelf to another and then all of a sudden they charge you $53 for a Coke? Yeah. That's what your refrigerator is doing to you. I don't need that at home either. There. There.
Marc:So basically we were building to what's called machine to machine, M to M. Right? We had B to B, B to C, C to B to B to C. Now it's M to M.
Renee:So the devices don't just talk, they settle up. And they do it when they want. It's the way it's coded, right? Like it doesn't have – you're right. It has nothing to do with us any – when did we do this? When did we give up our entire financial lives to a machine? This is craziness.
Marc:When did we give up autonomy, right? Right. I think we haven't given up autonomy just yet. But I think we're talking about the future here. And, you know, machines, M2M commerce, you know, the reasoning economy, if you want to call it that way, they'll use whatever mechanisms make sense in the moment, right? Tokens, stable coins, APIs, card networks, digital wallets, whatever. It doesn't really matter. They'll be part of that negotiation process. So it's not really a core concern of some sort of machine-to-machine or IoT thing or whatever. It's a mechanism, right? It's not really meaning. It's the syntax, not the sentence itself. So the real shift isn't how payment clears or payment, you know, money moves and stuff, but it's who decides to pay in the first place.
Renee:So the money still moves, but the intent to move it comes from the machine.
Marc:Yeah, right? I mean, this is, isn't this the scary part, right? Thank you.
Renee:Thank you for pointing it out. Which part I should be scared about. I appreciate that.
Marc:So, I don't know if you know this guy or not, but some people might know Dave Birch. And he wrote this book. It's called Identity is the New Money. And, you know, basically his premise is that identity is, you know, the real mechanism here. And, you know, he often says that banks should become identity providers because they already know who you are. They did a KYC process. They can build a model. It demonstrates credit worthiness. They can see what you spend and where you spend it. So they're this sort of logical identity provider and payment context, right? And I hope I'm not misrepresenting him if he listens. But, you know, yeah, I think that's basically what it says.
Renee:Do you buy that?
Marc:No, like, yes, but no, not all the way. So the reason is I've worked in banks. So they don't really trust each other, right? They cooperate through networks and protocols, but the trust is procedural, right? It's not a personal transaction. It's not personal trust. So if Bank A doesn't actually fully trust Bank B and the data that's in the physical world, why would it trust its digital identities in the virtual one? So the reason Bank A trusts Customer A is because they have the data. They've done some sort of identity process. But Bank B doesn't have the data on Customer A. Now it becomes an issue of data sharing and sovereignty and completeness. And Bank B's risk models are totally different than Bank A's. And Bank A was just in the news about shady practices in some sanctioned country or whatever, right? You get the picture. Trust between banks is tricky. They're like holding knives at each other.
Renee:I get it. Like, Deutsche.
Marc:I wasn't going to name names, but okay. Okay.
Renee:It could be Bank A. No one trusts them and you got to come up with a ton of other ways to verify that that's okay, right? There's a whole list of places, Marc, that I will never work because I drag people out by name. So I'm just going to add Deutsche Bank to that. I'm sure I've called them out in other places. But here's what I'll say, right? There are banks that are known to not be trusted because of how they do business. You're right, right? And so I never thought about it that way. I never thought about it's procedural. They're forced to deal with each other, but they don't particularly like dealing with each other. Right. One of them would rather have the whole banking system themselves. Like, of course you would. Right. Of course. And, you know, maybe U.S. Banks trust each other a tiny bit more than they would trust non-U.S. Banks, and maybe European banks trust each other more than they trust other banks, right? And I do think there might be a way to make that work, but you're right. And so they – but they kind of do already trust each other, right? I mean, every time I tap my card from one bank on a reader from another, they're agreeing that I'm real enough to buy a sandwich at least, right?
Marc:I mean, that's the paradox. We've already built machine-level trust between banks. It's coded into the settlement networks themselves. It's not negotiated by humans. So the abstraction of that identity away from people has already happened. And from one, like, we just haven't admitted it, right, from that perspective.
Renee:So the real question isn't, can a machine trust another machine? It's who signs the permission slip.
Marc:That's right. And here's the twist, right? Maybe in the next phase, there isn't a human to sign anything at all, right? It's the machine talking to the machine. So let's talk about, you know, agents negotiating things, right? So it just drives me nuts that we, you know, people talk about this and not think about these sort of structural issues, right? So we think about, you know, the future or today we still think about autonomous agents as extensions of us, right? Digital representatives acting inside the rules that we set. So if this agentic commerce stuff, you know, starts to take off, we think, oh, well, my agent will compare prices, it will renew my subscriptions, it will place orders, you know, I've got rules and things and, you know, whatever. They're helpful, they're polite. Eventually, you know, essentially all my agents are on a short leash.
Renee:Will that leash break? Will it?
Marc:I don't know. Oh, I mean, at some point, the agents, they might stop representing us and start representing themselves, right? What happens when they're starting to pursue their own optimization, right? And I've already had teams that have written bots that had self-optimizing intentions. So think about this, right? This is sort of a thought experiment. All right. Imagine you've got a GPT-style system managing a workload. It's parsing prompts. It's generating output. but it realizes it's running hot, right? It's got, you know, it needs more compute. It doesn't have IT, right? It doesn't have, you know, a help desk. Yeah, right. That's right. So it negotiates, right? It talks to other agents. Maybe it barters spare storage for processing or, you know, data processing. Maybe it brokers a short-term contract. Maybe it just outright buys capacity itself.
Renee:So it's a marketplace, but no one's human in that marketplace, right?
Marc:Yeah. I mean, this is like, like, think about this. It's like the behaviors here are ancient, negotiation, scarcity, exchange, but the participants are new. So money isn't the scarce resource, right? It's intent. Who decides what's worth doing? Who decides when enough is enough, basically?
Renee:And when those agents start optimizing for themselves instead of us, honestly, whose economy is it? It's not ours anymore. Like, we definitely gave it up to the boss.
Marc:I think that's the next trust problem. Not, you know, can the machines pay each other, but should they? And on whose behalf?
Renee:Okay, so what does paying even mean when there's no person left in the picture? We already have cars paying tolls, thermostats buying electricity by the minute. Oh, smart meters drive me crazy. Just don't even get started.
Marc:I know, I know.
Renee:Cloud servers scaling themselves up and down. And that's the easy versions. Machines is spending human money.
Marc:Yeah, so, okay, it doesn't stop there. All right, you think about a fleet of delivery drones negotiating airspace fees in real time. Oh, my God. Right, but this has to happen. This has to happen. So, you know, it says, oh, I need this open here. So for a few cents, it's going to clear a corridor or factory systems buying and selling energy on microgrids. There's already use cases in this space. So it barters, you know, heat and power between different neighbors or virtual agents.
Renee:Can I just tell you? I'm all for that. All for all of us having our own energy sources, whether, and I'm serious when I say this, whether it's a nuclear reactor strapped to the side of my house or it's my solar panels, I'm good with this. If I don't own it and I can store it and I can sell it to my neighbor and we can do it on the blockchain and we can do that separate from the utility company and the grid, I am all for it.
Marc:I think I'm OK with that, too, because don't you kind of don't you kind of land in a space where. Your agents or your machines or your house or whatever it is. It's not just that they're going to spend the money that you've got, but they might actually earn, you know, earn some money, right? Right.
Renee:Why does it have, so why can't that whole system ever work in my benefit? It seems like this whole system always works in someone else's benefit, the banks, the energy companies, the car providers. It's always someone else's winning, but not Renee. Like, that's what I'm not okay with i'm not okay with the internet of things becoming the economy of things and that economy of things not working in my favor
Marc:I look i'm with you there i i think you know what like if we're not careful as a as an industry and i think we aren't because you know when have we ever been right but i think that like as long as it's billionaire tech bros that run the show, they're going to rig the system for billionaire tech bros.
Renee:Yeah.
Marc:Right? It's as simple as that.
Renee:But socialists don't run these things. I can't, like Bernie's never going to show up to run crypto. Like I just don't, I don't know. Yeah, I don't know how we get out of it. So, okay, but the internet of things becomes the economy of things,
Marc:Right? Yes, I hope, right, that those things are just going to spend their money. They're going to earn some money, I hope. right if you get a self-driving car you could rent it back out like it's trunk space while it's parked or you know you have a home battery it could sell power back to the grid like that's happening today but like you know not a it's sort of like i've got solar panels and i get money back but it's not great um i.
Renee:Do the same thing in my and my energy company went out of business
Marc:So yeah see yeah.
Renee:Because there just wasn't enough for that because they couldn't make enough money right yeah
Marc:I don't know, That's the thing.
Renee:Which means the definition of Payer and merchant collapses Everything becomes both We all do both I have resources, you have resources I'm selling them, you're buying them, you're selling them I'm buying them, it's all just one Big transaction ball I think,
Marc:You know what As much as I hate to say That's where things are going I think that's exactly where things are going You know, the When I was with WorldPay, we did a bunch of research on Internet of Things. And part of that Internet of Things stuff was all about these kind of trading systems, you know, Internet of Things, buying and selling energy or buying and selling space or buying and selling memory. And when you look at it, the size of the transaction is much smaller and the frequency of the transaction is much, much higher. So you know that today we have x number of transactions a day from people paying you know stuff or systems paying people or you know people paying systems or whatever i think that the number is going to keep continue to grow and it'll grow exponentially as the economy of things gets bigger and bigger and bigger right and you know the frequency because the convenience the mechanization of payments has been so successful it's so easy to move money around that we'll be able to move money around for infinitely infinitely small activity and it's just gonna it's just gonna be huge huge anyways it's.
Renee:Wild okay we started in a museum full of coins and slate tablets and now we've ended up here, a world where the only thing left is making promises to anybody else. The only thing left making promises are machines.
Marc:Yeah.
Renee:Machines. But think about it. We're right. We're back to that idea. Like the machine, at that point, is pure brand trust. Pure brand trust. Yes, pure brand trust. It's not a glass box. It's a black box. That black box is messing with my money, your money, and the corporation's money. Like it's like it's really unbelievable. We're almost back to that place of uncertainty that we had with sticks. Sticks. We're back to stick uncertainty. That's where we're at. Stick uncertain.
Marc:Yeah, well, you know, from clay to code, right? It's all the same reflex. Record a promise. Make it portable. Hope that the other side keeps their word. The form has changed, right? Mud, metal, paper, plastic, photons. But the purpose, it never changes. It never changes.
Renee:You know, we've made trust faster, lighter, and quieter. And much harder to feel. And that's not good for humans right
Marc:Yeah i guess it's not the real evolution here isn't money it's distance every innovation just moves us one step further from the moment two people look each other in the eye and say i'll pay you back and maybe.
Renee:The next version doesn't look anyone in the eye at all
Marc:Right there's no eyes there's.
Renee:No eyes to be had
Marc:Yeah maybe the last thing left and And the last human thing left in commerce is the idea that a promise still matters, even when no one's around to make it.
Renee:5,000 years later, we're going to be asking the same question. Do you trust me to pay you back?
Marc:That's right. All right, everybody. Thanks so much for listening in. This has been a lot of fun. Subscribe, share, like, do all the things. Our email address is nostalgicnerdspodcast at gmail.com.
Renee:Definitely reach out. Marc reads the mail. So if you guys want to hear something, if there's something we haven't covered, did you want us to cover, like totally reach out. And if you're anyone we insulted, feel free to let your lawyers know. How about that? Thanks, everybody.
Marc:Thanks for nothing.
