How Crypto Occupies Wall St. (Part 2)
Metric Money - Blockchain vs. Traditional Finance is like US vs. Metric
This is part two in my series that explains the benefits of cryptocurrency and blockchain technologies in a working class context. Part one is not needed for this article but you can read it here.
In case you were wondering (you weren’t), there are 300 seconds in five minutes, 3,600 seconds in one hour and 86,400 seconds in one day. In the US standard of measurement there are 12 inches in one foot, 3 feet in one yard and 5,280 feet in one mile.
Blockchain has brought together Mathematics, Economics, Computer Science and Game theoretics to create a new financial system that is slowly but surely obviating traditional finance just as metric supplanted the imperial measurement system. Streaming money is a recent advancement from the cryptocurrency world and has the ability to lift workers out of the paycheck to paycheck trap. It doesn’t require a salary increase or cost of living adjustment, it only requires switching to a different payment system.
We typically pay bills once per month and get paid once every two weeks. It seems subtle but these intervals are out of sync with each other. For example, depending on whether or not we have a leap year workers may receive 26 or 27 paychecks in a year. And twice a year, regardless of leap year, people with bi-weekly checks get three per month instead of the usual two. This variability creates gaps between paychecks and bills making it difficult to maintain a budget for those living paycheck to paycheck.
Streaming money
Streaming money is a similar concept to streaming video but applied to money. On a Zoom call, people stream the output of their camera and microphone from their computer to another person’s. Streaming money is when one person streams money from their digital wallet to another person’s. Instead of sending money in a single transaction, it is sent continuously over a period of time. For example, if your salary were paid in a streaming fashion, you would receive a consistent influx of money to your digital wallet throughout the year, rather than a lump sum every two weeks.
Bills and subscriptions can also be paid using this method, and when combined, it eliminates gaps between paychecks and bills. To show the value in this, we’ll walk through some examples that show how someone can afford rent but be unable to pay it due to funding gaps. I'll also explain how streaming money can solve that problem.
Let’s plot a simplified example where an employee gets paid every other Friday and pays four bills spaced throughout each month. The graph shows the employee’s bank account balance. It goes up when they receive a paycheck and drops when they pay a bill.
For those who wish to play along check out the open source code I used to make the graphs in this essay.
The graph is a clunky eyesore which makes it difficult to reason about our finances. If we stream our salary and keep bill payments the same, our graph becomes a bit smoother. We can easily spot rent, our biggest bill on the first of the month.
If we also stream our bill payments the graph becomes perfectly smooth.
The $400 Dollar Emergency
Most of us have been in this situation before: your rent is due today but your paycheck doesn’t come for another four days. You have the money, but you don’t have the money. It’s possible to earn a higher annual income than the local cost of living but still go into debt because paycheck intervals do not align with bill payment intervals.
According to a recent Federal Reserve study about 40% of Americans can’t cover a $400 dollar emergency, to show how streaming money can help us, let’s place a $500 charge where you would least expect it to be a problem, on May 30th, when our balance is near its highest point.
Unfortunately, rent was due a couple days later, so we incurred debt. But we would still go negative even if our emergency landed on June 10th, the payday after rent.
And of course, two unexpected expenses give us more debt (April 10th and July 27th) keeping us underwater for much of the year.
But if we switch to streaming money, we can handle these payments with no problem.
This might seem like magic but it’s not. A less mysterious way we could do this would be to stop paying bills once per month and pay them every other Friday on payday. Mathematically speaking, there would never be a time in which the tenant is short on rent or any other bill. This is better than what we have now but would still be out of sync with annual tax cycles.
Imperial Money
The intervals in the US measurement system were arbitrarily chosen, unlike the intervals in the metric system which are based on tens for easy conversion.
Computers show time with a year, date, hours and minutes but internally it understands time as the number of seconds that have elapsed since the unix epoch, which is January 1, 1970. While this date was chosen arbitrarily it enables us to create a system of time measurement that is independent from Earth’s rotation. This is what is special about streaming money and where the metric analogy comes from.
The rotation around Earth’s axis is out of sync with its rotation around the sun resulting in 365.25 days per year. Because of this, it is not possible to have a time measurement system that is in sync with both our day to night and seasonal cycles which are how humans rationalize time on short and long intervals respectively. In most circumstances such as planning vacations, meetings, and other get togethers the precision of the Gregorian calendar is satisfactory. But when higher precision is required we have to decouple time from the rotation of the Earth. Science has already done this, but finance has not.
Strangely enough we could lift people out of the paycheck to paycheck cycle by only hacking the time intervals we use to pay and receive money. Companies don’t need to pay workers more or lower their bills to enable them to build wealth (although they still should).