Protocols And Networks of Money

6 min readJun 29, 2021

Protocol (n): a set of conventions governing the treatment and especially the formatting of data in an electronic communications system

Network (n): an interconnected or interrelated chain, group, or system

Over the last decade and a half, I have had the fortune of writing many lines of fintech software, some of them impactful and others not so much. Over the last month, I have had the fortune of reading Joe Nocera’s “A piece of action.” The week after the first summer solstice of post covid world, I had the fortune of overlaying the historical innovations in the financial services industry on top of computer science to attract nerds for my next fintech startup.

Looking back at humanity’s reaction to COVID, I could not help but notice the similarities to the flu of 1918 — the presence of anti-maskers, the second wave, and the healing in two years. As I lay hidden and afraid from my friends, I began to believe that I need to learn from the past to plan the future. In many ways, the past is the best predictor of the future.

Roaring Twenties: Many to one network riding on top of telegraph wires

Chronologically speaking, the earlier innovations mentioned in the book are wirehouses and credit cards. Charlie Merril planted the seeds of wirehouses in the roaring twenties, the decade succeeding the global pandemic, while Joe credits Joseph Williams as the creator of credit cards in 1958. At the outset, I will indulge in blasphemy and argue that courtesy cards of the roaring twenties pioneered by gas stations and chain stores were the true pioneers of credit cards; Joseph Williams added one more hop to the network.

Decades preceding the twenties, every telegraph pole lay the groundwork for the roaring twenties by allowing distant people to communicate at the speed of light. Tyranny of access to information was disappearing in front of people’s eyes. Pioneers dug under the Atlantic to connect the old world to the new world. When Charlie Miller first walked the rebellious steps of Wall Street, he saw a system of gatekeepers who controlled access to bonds and shares. He built a protocol on top of telegraphic wires where anyone could buy bonds and shares. The nascent chain stores and automobiles were the ones to benefit significantly from the access to wider audiences. As to Charlie Miller, when he died in 1956, Merill Lynch was the largest firm on Wall Street. Alongside Merill Lynch’s wirehouse network, the nascent chain store and gas station industry were pioneering metal charge plates and “courtesy cards” that customers could use to charge purchases. It is a product of times, the nascent chain stores and automobile industry owed its growth to investment generated by the wirehouse network of Charlie Miller.

Swinging Sixties: Computers and the rise of many-to-many networks

The roaring twenties were great, but arguably, the swinging sixties were even more transformative. The Second World War had a transformative effect on computers. If you ask a computer nerd, they are likely to argue that the world war was won by code breakers as much as by the soldiers and pilots. The many to one network of the roaring twenties still relied on humans to transmit and record messages onto pieces of paper. The computers that had replaced documents in the preceding decade meant that it was easier to do calculations and duplicate data seamlessly.

Consequently, it was possible to make the network more complex; we could have a many-to-many network. In 1958, William Joseph capitalized on this technology change and created the first many to many networks of payments “BankAmericard”. On the other side of the Mississippi, Gerald Tsai made Mutual funds where people could buy a bouquet of shares of stocks and bonds instead of individual shares and bonds.

Bullish Eighties: ARPANET and three degrees of the network.

The swinging sixties were transformative, but the cold war had more technology innovations in store for the world. The rise of ARPANET meant computers could talk to each other and did not need a human to record data. The increased use of computers led to longer chains of monetization money networks.

Merill Lynch created cash management accounts where people’s shares were encashable via checks.CMA was a third-generation network between banks, markets, and consumers. Citibank began a nationwide credit card program with a South Dakota license using credit bureau reports, a grid between consumers, banks, and credit bureaus. Fidelity moved from monetizing trading to charging fees based on the appreciation of their funds, a network between consumers.

The Booming Nineties: WWW and information superhighway

Far away from the zip-codes of Wall Street, Tim Berners Lee was laying the new telegraph wires for the next century. Using a clever arrangement of ones and zeros, he created hypertext, a better way to transfer information among researchers. Hypertext and the existing cables of the world developed into the first avatar of the “world wide web.”

When information leads, money follows. A visionary working at DE Shaw realized the new information pathways would lead to a new way of changing goods for cash, and we had the birth of Amazon. Paypal evolved to be a deeper network between buyers, sellers, marketplace, banks and trust who can be present in every transaction. The yellow pages, once valued at billions of dollars, were consigned to the pages of history.

The cautious 2010s: Private Cloud and Programmable Web

Just like the mainframes of the 1980s had created a deeper network of money, history was going to repeat itself in the programmable web. Paypal, Amazon, and StackOverflow need someone to initiate the movement of money in the network. Yes, I am a developer (Guilty as charged).

Stripe, Affirm, Square, Acorn, Mint of the world created a deeper network of money by automating most of the actions humans needed to do. Stripe made it possible to sell on the web without needing to talk to the computer in the language of computers. Acorn made it possible to invest spare cash without bothering about every transaction. Affirm changed the lending dynamics by enabling people to take on small-ticket short-term debts.

The New Roaring Twenties: AI onPublic Cloud.

The programmable web was great, but have you heard of Artificial intelligence-driven networks running on the public cloud. As Jeff Bezos once asked:

“Does it make your beer taste better about a brewery that was making it’s own electricity?”

The private cloud of the 2010s was like personal electricity in 19th century Switzerland; it was necessary for the decade. Private cloud created gatekeepers of internet economy where only a human conversant with operating systems could make full use of the internet.

The only thing constant about change is change. The broader acceptance of the public cloud over the 2010s has created an economic situation where anyone can create and deploy a software product. Https protocol allows for the secure transmission of data and instructions. Pre-built managed engines enable subject matter experts to develop and execute AI models. My theory is that the next generation of financial networks has to increase financial networks’ dimensions and length. These networks need to incorporate AI from the ground up.