As the Business Development Manager at OmiseGO, I’m responsible for generating business from identified opportunities and implementing growth strategies to create value for shareholders. Before OmiseGO, I worked in the finance industry and it enabled me to see great potential in leveraging technology to improve financial inclusion globally.
OmiseGO is on a mission to reshape our economic realities by enabling people to securely access financial services, invest, exchange and spend digital assets anytime, anywhere through the OmiseGO platform. In order for me to create solutions pragmatically, to reach this goal of financial inclusion, I have to understand how facets of the financial industry have developed. In finance something that has always intrigued me is how humans developed systems of trade over time. Looking into the history of mankind’s economic activity we can see that our current centralized and trusted institutions all developed from realities and truths that we created collectively, but really have no bearing in the natural world.
Constructing Our Economic Realities
One of the most awe-inspiring human traits is the ability to imagine, to create new and fictional realities. As long as everybody believes in this same fiction, everyone obeys and follows the same rules and norms. Within the realms of economics and finance, this is manifested through the representation of value, including tokens, paper money, and gold bars. A one hundred Thai banknote is intrinsically valueless, but owing to supply and demand mechanics along with government decree that the banknote is legal tender, we attribute value to it.
However, money hasn’t always existed in the form of paper, coins, or gold bars. Way back in the ninth millennium BCE in ancient Egypt and sixth millennium BCE in Mesopotamia, money or any type of medium of exchange has yet to exist. Barter was the go-to method, where people directly exchanged one good–often livestock or produce– for another. One of the biggest issues related to this method was the double coincidence of wants problem, where A must have what B wants and B must have what A wants. For instance, if A has six dozen eggs and B has one cow and both agree on the terms, barter can take place. But what happens when B doesn’t want eggs or only has one cow and can’t take apart his cow? The inability to subdivide certain goods, lack of a double coincidence of wants, and a lack of a standard unit of account are serious challenges and limitations posed by barter.
Later in the 3000 BCE, commodity money, or money whose value is based on the material with which it is manufactured with, arose in Mesopotamia via barley. In this instance, while barley was used as a medium of exchange, it was also a metric of perceived value.
Commodity money derives value from two sources: value in use and value in exchange. Value in use means that the object or good itself has intrinsic value, providing users with utility or a practical use. On the other hand, value in exchange means that the good or object can also serve as a medium of exchange, say five shekels of barley for a pound of wool. One of the biggest advantages in using commodity money is that there is always a purpose for that commodity aside from being a medium of exchange. Beaver pelts used in the Hudson Bay Company provided heat, while beads used between the Dutch and Native Americans when purchasing Manhattan also found their place in jewelry and handicraft.
Trading within the eastern Mediterranean or the area encompassing present-day Egypt, Iraq, Syria, Lebanon, and Israel-Palestine during the Late Bronze Period had become more sophisticated, marked by the advanced developments in coastal ports and maritime infrastructure. While this golden age of commerce brought immense wealth to the region, there were also some losses, such as the Cape Gelidonya and Uluburun in southern Turkey. Among the archaeological finds included royal gifts such as copper, tin ingots, gold, silver, weapons and tools.
This wasn’t to say that these two unfortunate maritime events completely changed the trajectory of monetary history, diverting use of commodity money to coins. As with any other major event or moment in history, rarely is anything attributed to one lone cause or character. Rather, this example serves to depict the inconveniences and headaches related to transportation and the logistics of commodity money.
In 1200 BCE, the first use of cowrie shells, or the shells of mollusk, was recorded around the Pacific and Indian Ocean area. These cowrie shells would later be used in areas such as North America, Australia, and West Africa as well. These small, compact articles were fitting as money, considering their durability, divisibility, and convenience of carrying.
Not long after in early 200 BCE of the Qin China, coins were first standardized across the entire empire. These half tael coins, known as banliang, were bi-metallic, made of a combination of copper, bronze, or iron, and had a round shape with a square hole in the center for stringing together other coins. It’s worth noting the transition to bi-metallic currency from the times of the Shang (1600 BCE — 1046 BCE), during which gold had already been in use. According to the famous historian Sima Qian, “In ancient times, fur was valued as gifts and tributes by the feudal princes. Coins were made of different metals, gold as the superior level, silver as the medial level and copper as the inferior level.” However, this was limited only to the context of gift-giving and tribute. Gold cast, cash coins existed, but were considered rare.
Paper money began to appear in different areas of the world in different times. It is no surprise, though, that it was the Chinese who invented the first paper money. Given their modern developments in woodblock printing, dissemination of various texts, including books, scrolls, images, and eventually banknotes spread over the country. During the Tang period, traders sought to avoid the bulk weight of bi-metallic coinage used in earlier dynasties, turning instead to hequan, or bearer bonds, which were essentially ancient IOUs acknowledging that the trader had received money or a good from another trade.
It was through his journey to Mongol-ruled China that Marco Polo was first introduced to paper money. Amazed by the government-backed currency, the explorer brought it back with him to Europe in the 13th century. Despite that, the first European banknote would not appear until a couple hundred years later, when it was printed by Stockholms Banco (Bank of Palmstruch).
Fortunately, banks and banking practices had already existed in Europe before the introduction of the paper currency. This made the integration a much simpler process regardless of fears that paper money might harm the Swedish monetary system.
People found it much simpler to deposit gold and silver in banks, buy and sell certificates claiming ownership rather than carrying it around. The notion that precious metals stored in the banks gave notes value gave rise to the gold standard, where the value of a currency is based on a certain quantity of gold.
Without getting into too deep, there are significant problems with the gold standard, such as its inability to ensure financial and economic stability, lack of a fixed supply, and unequal distribution, acting in favor of countries who are primary producers of gold.
From Fiat to Digital Money to Cryptocurrency
By the end of the 1970s, the gold standard had become entirely replaced by fiat money. Accompanied by the Internet, digital banking, new financial practices and products appreciably took off, seen in the advent of credit cards, internet banking, virtual e-money loyalty points–known collectively as digital money.
While these technologies and services provided us with increased speed and convenience, reduced transaction costs, there are still concerns related to security, identity theft, and third-party reliance.
This is where tokens and cryptocurrencies such as OMG, BTC, and ETH fit in the picture. Their goals are to break apart from third-party reliance, improve settlement time, lower fees, increase access to the underbanked and unbanked.
Loyalty & Affiliate Programs
We also want to talk about loyalty points and reward programs, which we feel have been left out from the picture despite being classified as another asset class, just like fiat and crypto.
Currently, the global market cap for loyalty hovers around $500 billion USD, $270 billion for crypto, $7.6 trillion for fiat and $73 trillion for stocks. There is certainly more room to grow for this particular financial instrument, especially with tools such as data and predictive analytics providing enhanced customer insights.
Businesses, ranging from SMEs to large corporations, want to be seen as innovative, serving on the front lines. Customer relationship management is another big motive, allowing businesses to monitor customers’ transactions and study their preferences and spending habits.
Nevertheless, if customers don’t “burn” points: these points become a liability for the company. This is commonly attributed to not having sufficient channels through which to burn points; based on the Bond Loyalty Report of 2016, customers belong to an average of 13.4 loyalty programs, but are active only in half. More often than not, these programs are very much siloed: one card can only give customer benefits to one company. From a consumer point of view, it would be much simpler to have an application or card that can handle loyalty and rewards for every program they participate in, as opposed to having one for each.
From a company point of view, allowing consumers to share or trade points cross-company may not sound like ideal at first. However, some big players can sell their points for high-profit margin, others can attract more people to join their ecosystem. For SMEs, their ecosystem is too small; teaming up with bigger brands can help expand their network and help with customer relationship management.
Furthermore, if we were to use the simple economic principles of absolute and comparative advantage, it is better for two parties to trade [points] if both have a comparative advantage in producing their goods or service. By using fewer resources — financial capital, personnel, and time, increasing production of one good means less of another can be produced. Trading thus allows two parties to enjoy a higher total output and level of consumption that what would have been possible had they remained on their own.
Ultimately, this is a win-win situation for customers and companies: the former can claim points, store them as assets, and increase the “liquidity” of their assets by exchanging it to other assets; the latter can lower their liabilities, increase the value of their points, which in turn increases the incentive for customers to use their products.
Currently, the risk appetite is very low for those wanting to move into a blockchain-based solution for loyalty programs. Loyalty has almost little to no regulatory challenges or legislative scrutiny as in the case of securities or cryptocurrencies, making it prime for testing on the blockchain.
Where OmiseGO fits in
As long as there are still different tokens and cryptocurrencies out there, OmiseGO will remain a vital piece of the puzzle. Acting as a primary provider of a rail-agnostic payment and currency-agnostic DEX, OmiseGO allows people to pay with whatever digital asset and accept money in any digital asset they prefer.
Besides our primary focus on the OMG Network and eWallet Suite, we’re also continually focusing on loyalty and rewards as an entry point for enterprise eWallet users who are interested to move onto the blockchain but are not ready to jump all the way in. Loyalty points are very much low-risk and are not subject to legal and regulatory compliance as in the case of securities, cryptocurrencies or fiat.
OmiseGO allows digital assets to be transparently transacted in real-time, peer-to-peer manner through a global digital wallet and decentralized exchange infrastructure. Because of this, we can’t think of a better service for handling digital assets and tokens, as well as loyalty programs.