(Disclaimer: I am not an expert, and this article is for entertainment purposes only, it is not financial advice.)

This post describes five types of currencies that I believe we might see in the future: debt based, commodity/service based, bonds based, stock based, brand-based. 

The goal of the post is not to argue which types are the best, the goal is simply to describe the different types.

1. Brand based currency (Currencies based on nothing)

Brand based currencies (not an established term) is money that is not based on anything, it exists, and people might use it, but the value is entirely based on people believing it. In a way the money has a brand that people believe is trustworthy, and will uphold a certain value. Many cryptocurrencies like Bitcoin and Litecoin fall into this category. These currencies could be replicated, but still some people seem to believe in the brands, that they will uphold a certain value.

It could be argued that gold is a brand based currency, it is mostly the belief that gold will keep its value that makes it such a common investment. (Gold will also be discussed in commodity based currencies)

2. Debt based currencies (ex Fiat)

Debt based currencies are currencies like US dollars, euro and yen. These currencies have been created by an actor (often Central banks like the Federal Reserve) issuing loans to other actors like governments and banks. The currency in itself is not tied to anything with intrinsic value, but since the actors who took the loans need to repay them, there is an interest in accumulating it. 

For example, if all people suddenly decided that a currency was useless, still the banks who had loans in that currency would need to repay the debt, or break the law and face bankruptcy.

3. Commodity/service based currencies

These are currencies backed by commodities (like corn, oil, batteries, GPUs, Land) or services (like GPU time, leased real estate, or file storage).

Gold based currencies would fall under this category as well.

Often these types of “currencies” are in the form of futures, where there is a contract to buy a certain commodity or service at a certain price. Meaning if you buy an oil future, you are promised to get that oil at a specified date in the future. Since it works as a loan that is repaid in commodities, futures “should” increase in value over time.

Real estate can fall under either commodities or service, because the right to lease a property could be seen as a service, the ownership of land or real estate could be seen as a commodity. (A company that owns real estate is still under the category stock)

4. Bonds

Bonds are loans that can be denoted in any type of currency. They are usually promises of a greater sum of that currency at a specific time in the future. 

5. Stock

Stocks are ownerships of companies, and the value of companies are usually calculated based on predicted dividends (adjusted for time).

Bonus: Hedge funds

Hedge funds combine all the different types of “currencies”, usually with the intention to maximize the reward to risk ratio.

Own thoughts (feel free to disagree)

I imagine in a sci-fi future, we might have “commodity/service coin” as “low level” currency, that bonds are denoted in, and stock pays dividends in. Further it makes a lot of sense to denote prices of commodities and services in some kind of “commodity/service coin” since it would give the most stable prices over time.

Yet, the best investment form is probably either stocks or some type of hedge fund (unless you can outperform the general market). Stocks generally create the most value over time, but also come with higher risk than bonds and futures. Hedge funds should in my understanding give the best risk to reward ratio. So, for most people probably hedge funds are the best investment long term. For that reason, it might be preferred to automatically change all currencies to hedge funds, whenever possible, which I can see happening in a sci-fi society.

Feedback is appreciated

This is my first post, so any feedback on how I can improve my posting skills are appreciated.

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11 comments, sorted by Click to highlight new comments since: Today at 5:01 AM

I think LessWrong could use with more earnest discussion of what the future might look like, and appreciated this.

Yes, it seems logical that the better we can predict the future, the better our decision will be today.

I find it interesting that some of the people who have had the biggest impact on the world, like Jeff Bezos and Elon Musk, say they have been heavily inspired by sci-fi. Which might indicate it is highly useful to imagine the future in order to do big change.

Note the reason why a specific cryptocurrency, from a set of competing crypto currencies, gets used is an example of the network effect.  The more people use a specific cryptocurrency (bitcoin or ethereum or dogecoin or whatever), the more and better support there will be for transactions in this currency.  This means better and more reliable software (less likely to lose or corrupt your money), and more importantly, it means less volatility and more stability for carrying value from sender to receiver.  The more mega or giga-dollars being moved using that currency the better off you will be for your transaction.  Especially if your transaction if large or you are trying to be anonymous - either way, more traffic is better for you.

This is the network effect - using the network with more users has more utility to you.  In the cryptocurrency world this means the currency that both (1) offers all the features needed in practice (2) has the most users is ultimately going to become dominant.  

At the moment more people transacting in Bitcoin makes Bitcoin less useable as a currency. Transaction costs of >10 dollars per transactions are simply undesirable for most economic transactions. Politically, it also seems to be hard for bitcoin to change in a way that would make it suitable as a real currency and radically reduce transaction costs. 

Yes, and also usually the currency becomes safer (harder to "hack") with more miners.

Resources like corn and oil are typically called commodities in this context.

Thank you for the feedback, I changed it to commodities in the post.

In what sense should it be benefitial to have a currency that's different from a “commodity/service coin”? Isn't the core different between a currency and an asset that it gets used as a “commodity/service coin”?

How do these ideas connect to the primary use of currency, which is acting as a medim of exchange?

Also, too, this doesn't seem to have any new insight beyond the Wikipedia entry: https://en.m.wikipedia.org/wiki/Currency

I suspect the future will be more pluralistic in many dimensions, including this one.  But I think we're already there in some ways, and probably won't change much in others.  

Most people don't store significant amounts of wealth in a currency.  Investing is greatly preferred.  I don't think that's likely to change.  

Most people DO borrow in a local currency.  Corporations sometimes borrow in multiple currencies.  And almost everyone transacts in their local currency.    Importantly, governments demand taxes in their currency, so everyone must participate at least a little in that format.  This anchoring is likely to continue to matter for a long time.

The migration of value between investments (stored value) and currency (immediately usable value) takes a bit of time, and that time is likely to reduce in the future.  My prediction is that large-government fiat currency continues to be the dominant transaction mechanism, but it becomes so easy to buy and sell other stores of value that it's generally only held for minutes at a time.  When you buy a gallon of milk, you'll convert a fraction of your commodities fund to euros, make the purchase, and the store automatically converts their euros to their preferred investment, for 9 hours until they convert it back to pay a vendor (who converts it to their portfolio choice until end of week, when they convert it to pay their employees, who also instant-convert it to something else).

With, of course, some chance that it all falls apart and bullets (as a valuable trading commodity, and as enforcement for transactional integrity) become the key measure of value.

Yes, I agree that governments will be likely to "defend" their local fiat currencies, since they both have incentives (like control of the currency and production of more, and often relies on creating more to fund budget deficits), as well as the means to defend it.

I personally would really like such a bank account, that automatically invested the money in the account in the way I want, if the fees were low enough.