Thursday links: Physics money, grift money and resistance money

The future of finance might be physics

John Lilic, an investor with a long track record in crypto, thinks physics-based quantum money will make blockchains "obsolete."

The physics part is complex, of course, but the money part is pretty simple: "Quantum states," Lilic explains, "are resources that cannot be copied." 

This neatly solves the double-spend problem at the heart of crypto, he says, without all the rigamarole of a blockchain: "You don’t need miners, you don’t need validators, you don’t need shared-state."

That really would simplify things.

"What’s the point of blockchains," Stefano Gogioso rhetorically asks, "if you have something that cannot be double-spent [because of] physics?"

All you need instead are some quantum-entangled qubits. "The idea of quantum money," Lilic says, "is to use these [quantum] states as bank notes and ascribe value to them."

But why would anyone ascribe value to the quantum state of some particle?

One reason is that banks will issue them: "I have a hard time seeing how stablecoins won’t be quantum states," Lilic says.

Similarly, Gogioso sees quantum money "as the natural successor to cash," and banks as "the originators" of its value.

But he also sees it as the natural successor to the OG cryptocurrency — quantum money, he says, is "like Bitcoin" except that "you can do it with photons" instead of proof of work.

So, in theory, both stablecoins and non-sovereign money could be secured by quantum physics — and every other form of money, too.  

"The entire financial system," Lilic predicts, "will transition to a physics-enforced or physics-based system."

And maybe pretty soon, too. The technical breakthroughs required to make quantum money a reality (with the big one being a device that can store quantum states) are "just a few years away," according to Gogioso.

Shortly thereafter, he predicts, quantum money will "change the world in such a fundamental way."

I hope he’s right, because it sounds like a lot of fun: Quantum finance is sure to be everything we don’t understand about physics combined with everything we don’t understand about money. 

The grift counter

The running total of the money that’s been lost to crypto "grifts and disaster," kept by Molly White on her website, is up to $80 billion. 

That is a lot of money, for a lot of reasons; one of which is that someone ultimately has to buy all of that hacked and stolen crypto.

There have been so many of these hacks and exploits that even very large ones — like the hardware-wallet social engineering scam that recently netted $282 million of LTC and BT — barely register anymore.

But I think they should register — if for no other reason than that’s another $282 million of crypto supply that will eventually hit the market. 

I suspect this is an overlooked factor in determining why crypto has failed to get any momentum going in a phase of the market when both equities and precious metals are booming. 

Each hack takes crypto away from a true-believer HODLer and dumps it indiscriminately onto the market. 

This depresses prices and dims enthusiasm — both for the victim, who’s now hundreds of millions poorer, and for the observers watching it happen.

It’s definitely not the primary reason that bitcoin has underperformed the S&P by 32% and gold by a whopping 110% over the past year. 

But it belongs on the list.

Prediction markets squared

Per Polymarket, there is currently a 3% chance that, by the end of January, there will be a 30% chance Khamenei will be out of power by the end of February.

In other words, there are now prediction markets on prediction markets.

Whether that is the future of finance or the fourth horseman of the capitalist apocalypse is left as an exercise for the reader.

Crypto is — still — resistance money

Reporting from Afghanistan, The New York Times can’t quite hide its surprise at finding a societally beneficial use case for crypto. But they give themselves away right in the headline, which calls Afghanistan "an unlikely source of crypto innovation."

But the Islamic Emirate, being a country with an unreliable currency and an oppressive government, has long been a source of both crypto innovation and inspiration.

As early as 2013, tech entrepreneur Roya Mahboob used bitcoin to pay female employees when the Taliban made traditional banking inaccessible to women. Educator Fereshteh Forough has long used crypto donations to fund online classes and coding schools for Afghan girls who were otherwise barred from education.

So The New York Times should sound less surprised that "an Afghan start-up is building tools that it hopes will transform how humanitarian aid is delivered in countries shattered by conflict."

HesabPay, the Times reports, is being used by the United Nations "to support more than 86,000 families in Afghanistan," where it’s delivered nearly $25 million to refugees who have returned to the country over just the last year.

In total, HesabPay has about 50,000 regular users in Afghanistan, "moving approximately $60 million a month in stablecoins backed by the afghani, Afghanistan’s currency."

I’m not sure why they use an afghani stablecoin (who knew there was such a thing?) and not a dollar one. Maybe because HesabPay is licensed by the government. Or maybe just because the afghani has been surprisingly strong recently. 

But the crypto use case here is transparency:  "Donors want proof that their money reaches the right hands," the Times reports, and HesabPay provides that in a way that cash and even banks can not. 

For aid donors, [HesabPay] offers a level of oversight rarely possible in fragile states. During a recent online demonstration, Nigel Pont, the company’s senior adviser for humanitarian affairs, clicked on a purple dot representing a HesabPay agent in Afghanistan. Dozens of pale blue beneficiary wallets fanned out, showing recent transfers. Another click revealed where the money went next. Then one wallet pulsed red with a potential scam alert — an awkward moment in a live demo, but exactly the kind of risk the system is built to expose.

Unsurprisingly useful, I’d say.

— Byron Gilliam

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Crypto’s premier institutional conference is back this March 24–26 in NYC.

Don’t miss SEC Chairman Paul S. Atkins’ keynote on Day 1.