Little did we know that Amazon would ultimately sell much more than books.
Amazon focused on removing the middleman from the process and by doing so offered books at prices below the brick-and-mortar retailers. It took time, but Amazon changed retail on a global scale. We can now see empty retail stores with for rent signs as the long-term outcome of people buying goods directly online without a local middleman is now the norm vs the exception, and as such, Amazon’s usage of the internet disintermediated the neighborhood store, making it uneconomical to compete against an ever-present, 24-hour a day merchant/distributor.
The internet during the 1990’s and 2000’s changed so much about the way we live, but it did not impact our relationship with Banks.
The process of how we paid for things and how we managed our money remained bounded by the rules of the prior fifty-years. We now ordered goods and services online, which was revolutionary, but we paid for our merchandise through banks via our credit cards just as we had always done. There was no way to pay for our orders directly to the merchant (other than cash). We were required to have a middleman to process the payments, a traditional bank.
Why were we required to have a traditional financial middleman?
The internet did not have the capability to transfer money or value because it could not create a unique transaction that moved money from one person to another, ensuring that the sender/buyer no longer possessed the money in their account once it was sent to the receiver. As an example of the problem, when you send an email, both you and the person receiving the email have it. You both have the content of the email, and you can each share that content with any number of other people. That does not work in a world of money where we need to destroy the ownership of the money from the sender to ensure that the only person who now has the money is the recipient. Prior to the introduction of Bitcoin, it was not possible to send money directly to another person without having a bank in the middle to balance the books.
In 2008, we experienced a banking crisis. Part of the issue in that environment was that our banks and financial institutions were a part of every financial and trade transaction, whether it was credit cards, mortgages, payroll, derivative financial assets, etc. With our banks involved in every transaction, we became exposed to a web of problems because our financial institutions were too leveraged and were involved in every monetary transaction across the globe. A solution to our dependency on the legacy banking system cried out to be heard.
To address the institutional control over our money, which costs us large sums when we transact with a bank in the form of bank charges, maintenance fees for our deposit accounts, three to five day delays in deposits to our accounts, and required 3rd party approvals to access and transact with our own money, a technological solution was needed; an internet based solution that made moving money just as easy as sending an email.
In 2008/2009 a research paper was published that introduced Bitcoin and its Blockchain. It was the solution that enabled us to send money to each other without a bank in the middle. If you hear the name Satoshi Nakamoto, that is the name signed to the research paper. No one knows who this person is, but the impact of this Whitepaper is in the process of changing the world, just as the initial versions of the internet did.
The next chapter will explore how Satoshi Nakamoto solved the riddle of money over the internet.
