When Scarcity Isn’t the Constraint

Welcome to Bitesize Payments: Digital. I’m Paul Thomalla.

You use money every day. You work for it. You worry about it. You plan your life around whether you have enough of it.

But what is it?

 Not what does it buy. Not how does it work. Not who controls it.

What actually is it?

This seems like an obvious question. Of course we know what money is. It’s the thing in your bank account. The numbers on your screen. The stuff you use to buy coffee.

 But here’s what’s strange: when you try to define it — really define it — the answers start falling apart.

 Is it the paper notes? No, many people don’t touch paper anymore.

Is it the gold backing it? No, we left that decades ago.

Is it what the government says it is? Maybe, but governments are losing control of that story.

Is it what banks track in their ledgers? Possibly.

So what is it, exactly?

Payments Industry Insights

History of Payments

Payment System Explained

Corporate Payments Strategy

Payment Regulations Impact

ISO20022 Standard

Digital Payments Evolution

CBDC Advancements

Cryptocurrency in Payments

Financial Technology Education

Transcript

BITESIZE PAYMENTS: DIGITAL

Episode 3: When Scarcity Isn’t the Constraint

Transcript

Substack Version is here https://bitesizepayments.substack.com/p/episode-3-when-scarcity-isnt-the

OPENING

Welcome to Bitesize Payments: Digital. I’m Paul Thomalla.

You use money every day. You work for it. You worry about it. You plan your life around whether you have enough of it.

But what is it?

Not what does it buy. Not how does it work. Not who controls it.

What actually is it?

This seems like an obvious question. Of course we know what money is. It’s the thing in your bank account. The numbers on your screen. The stuff you use to buy coffee.

But here’s what’s strange: when you try to define it — really define it — the answers start falling apart.

Is it the paper notes? No, many people don’t touch paper anymore.

Is it the gold backing it? No, we left that decades ago.

Is it what the government says it is? Maybe, but governments are losing control of that story.

Is it what banks track in their ledgers? Possibly.

So what is it, exactly?

Episode 1 showed we’re still running physical payment systems long after the gold left the vault. Episode 2 showed the borders that contained monetary control are breaking. But both episodes assumed we know what money is.

What if we don’t?

WHAT MONEY WAS (WHEN IT WAS ATOMS)

When money was physical, the answers were simple. You could hold it, weigh it, test it, lock it in a vault. Scarcity wasn’t a policy choice — it was physics. Mining gold is hard. Forging notes is risky. The physical properties of atoms made money naturally scarce, naturally located, naturally verifiable. For thousands of years, the properties of money were the properties of the material it was made from.

“What is money?” That gold coin in your hand.

“What makes it valuable?” Gold is rare, useful, beautiful, and hard to get.

“What stops you from copying it?” It’s hard and it’s illegal.

“Where is your money?” Right there, in the vault.

“Who controls it?” Whoever physically possesses it.

WHAT MONEY BECAME (WHEN IT BECAME BITS)

Now try answering those same questions about the money in your bank account.

What is money now? It’s not a physical thing you can hold. Mostly it’s numbers on a screen. But what are those numbers? Information representing… what exactly?

What makes it scarce? Digital information isn’t naturally scarce. I can copy this document infinitely. I can duplicate a file with a single keystroke. If money is just information, what stops me from copying it? From changing the numbers in the database? From spending the same digital dollar twice?

Where is your money? This is worth sitting with for a moment. Where are the pounds in your bank account? On a server somewhere? On multiple servers? In the cloud? You can’t point at where your digital money is the way you could point at a vault.

How do you verify it? You can’t weigh it, test it, or hold it up to the light. You have to trust… what? The bank’s database? The blockchain’s consensus? The cryptographic signatures? Verification moved from physical examination to trust in systems you can’t see or understand.

Who controls it? If it’s in a bank, does the bank control it or do you? If it’s on a blockchain, is it controlled by whoever has the private key? Or by the protocol’s rules? Or by the miners validating transactions?

Control isn’t binary anymore. It’s distributed, conditional, and complicated.

THE SCARCITY PROBLEM

This is where it gets interesting.

For all of human history, money worked because it was scarce. You can’t flood the market with unlimited gold — it’s physically difficult to mine. You can’t print unlimited banknotes without destroying their value — people notice and trust collapses. Scarcity was fundamental. It’s what made money money.

But digital information isn’t scarce. It’s the opposite of scarce. The cost of reproducing information approaches zero. I can send you this essay and we both have it. That’s a feature of information, not a bug.

So how do you make money — which must be scarce to work — out of information — which is naturally abundant?

We’ve found two routes. Banks enforce scarcity through institutional control — they maintain ledgers, track balances, and make sure you can’t spend what you don’t have. Cryptocurrency enforces scarcity through algorithmic rules — Bitcoin has a fixed supply of 21 million, and the protocol rejects anything that violates that constraint. Both approaches work. But both do it by creating artificial constraints.

The scarcity that was natural in the physical world has yet to be fully constructed for the digital one.

MAYBE THE QUESTION IS WRONG

But maybe we’re asking the wrong question.

We posed the question earlier: you tap your phone to buy coffee — do you know what that four euros fifty actually is? Do you care?

You care whether you have enough to buy the coffee. You care whether you can afford the house. You care about having more or less than you need.

But what the money itself is? What it’s backed by? Whether it’s euros or dollars or some stablecoin underneath? The denomination becomes almost irrelevant.

What matters isn’t what money is. What matters is what it does.

Can you exchange it for things you need? Will other people accept it? Does it maintain enough stability that the number tomorrow is roughly what it is today?

If yes, then who cares what it “really” is?

The dollar is the dollar in the desert — meaning if you’re dying of thirst and someone has water, your dollars mean nothing. Money only matters when the social agreement holds and there’s something to exchange for.

So maybe money isn’t a thing at all. Maybe it’s a relationship. A shared agreement. A collective belief that these particular numbers mean something.

That was always true. Even gold was valuable because we agreed it was valuable. But we could hide that uncomfortable truth behind physical scarcity and weight and shine.

Now the physical props are gone. And we’re left staring at what money always was: whatever we collectively decide it is. Nothing more.

When you realise that, you have to ask: what makes one set of numbers “money” and another set just… numbers?

WHEN SIZE STOPS MATTERING

There’s another way money becomes unrecognisable: it stops being human-scale.

In the atom world, money came in fixed denominations. You couldn’t split a penny. You couldn’t make a payment smaller than the smallest coin or note. Transaction costs meant micro-payments were impossible — processing the payment cost more than the payment was worth.

This shaped what was possible: what you could sell, how you could charge, which business models worked. Physical money had minimum viable sizes.

But digital money can be infinitely divisible. 0.00000001 of anything. A millionth of a euro. If transaction costs approach zero, those tiny amounts become viable payments.

Which means money stops being something humans necessarily interact with.

Your fridge paying per kilowatt-hour of electricity. Your car paying per metre of road usage. Your device paying per API call. Machines transacting with machines at scales and speeds humans never see.

Is that still “money” in any sense we’d recognise? Or is it something else that just happens to use numbers?

When money can be any size — from billions to billionths — and operates in machine contexts at machine speeds, are we even talking about the same thing anymore?

WHEN COLLECTIVE BELIEF CAN CHANGE

If money is collective belief, then money can change when belief changes.

When money was gold, it couldn’t change much. Gold’s properties are fixed by chemistry. You couldn’t wake up and decide gold worked differently.

But when money is information governed by rules — rules enforced by institutions or protocols — those rules can change. Be replaced. Be competed with.

If money is whatever we agree it is, we can agree on different things.

Government currencies. Stablecoins. Cryptocurrency. Corporate tokens. Protocol-based value. Something that doesn’t exist yet.

This has happened before, of course. When Nixon closed the gold window in 1971, the world’s monetary belief system changed almost overnight. When Europe adopted the euro, hundreds of millions of people agreed to believe in a completely new form of money. When mobile money took hold in East Africa, communities that had never trusted banks placed their faith in a telco’s ledger instead. Belief shifts. It always has.

What’s different now is the speed at which it can happen, and who gets to propose the alternatives. Changing monetary belief used to require governments, treaties, decades of negotiation. Now a whitepaper and a network effect can do it. The barriers to creating a new form of money have collapsed in the same way the barriers to publishing or broadcasting collapsed. Not everyone who tries will succeed. But the fact that anyone can try changes the dynamics entirely.

And unlike previous shifts, people may not even need to choose. Your phone could hold euros, stablecoins, and a corporate token simultaneously, switching between them depending on context. Money might become less like a single national language and more like the way we already use apps — different tools for different purposes, quietly coexisting.

The nature of money stops being fixed. It becomes negotiable. Competitive. Evolutionary.

And if we can’t define what makes something “money” rather than just information, we can’t predict what survives.

THE QUESTIONS WE’RE LEFT WITH

So here we are at the end of Part 1.

We’ve seen that the payment systems we built are designed for physical money that’s been gone for decades. That the sovereignty containers that held monetary control are breaking. And that the fundamental nature of what money is has changed — and we’re not sure what it is anymore.

Everything we thought we knew about money and payments is built on assumptions that no longer hold.

If money is just collective belief, what determines which beliefs survive? Government authority? Network effects? Mathematical elegance? User experience?

Can money work without natural scarcity? We’ve constructed artificial scarcity through institutions and protocols. But is constructed scarcity as robust as natural scarcity? What happens when it’s tested?

Does money need to be human-scale? If it can be infinitely divided and operates at machine speeds, are we even talking about the same thing anymore?

What makes digital money “real”? In the absence of physical backing, institutional guarantee, or natural scarcity — what gives digital money its reality?

We don’t have good answers yet.

But we’re about to encounter things that challenge our understanding even further.

Because if money is just information, and information can be programmed…

What happens when money can execute its own rules?

That’s where we’re going next.

OUTRO

Next time on Bitesize Payments: Digital — Episode 4: Programmable Value. Part 2 begins.

If you found this valuable, please subscribe and share. I’m Paul Thomalla. Thanks for listening.