Anyone who is even vaguely paying attention knows that there are many hard-fought battles being waged over what's happening because of the Internet. In this article, I'm going to make some predictions about what they might mean in the longer term. In doing this, I'm taking the risk of being wrong, as anyone does who tries to see the future. But it's worth doing because we are all affected by the outcomes, and it's important to prepare oneself for change.

The first battle I've been thinking about is music and its distribution (sharing) over the Internet. To begin our overview, it's important to go back in time a little, back to before recording became technologically feasible. This was really not so long ago, although there may be a few alive who remember it. Have a look at this page, which gives a concise history of recorded music. Note that even music boxes haven't even been around for very long. Before music boxes, there were clocks which chimed the hour with a musical number as early as the sixteenth century. This is not a long history.

There are two other things of note here. First, it is very doubtful that any musician in the nineteenth century was upset that someone used his or her composition as a theme for a clock chime or a music box. The first commercialization of recorded music which I've been able to find is piano rolls, which came along just over one hundred years ago. Admittedly, piano rolls did an excellent job of recording exactly what the pianist played, much better than a music box could have. But it's still important that only the increase in fidelity of recording brought about the payment of royalties, and this has a very short history.

The second thing to note is that many people were still musicians even though they were not compensated by the payment of royalties.

You may have read country music star Vince Gill's statement about the effects of downloading: "...if it keeps going the way it's going, ultimately there won't be any more music". This is ridiculous hyperbole. If anything, the advent of the Internet, inexpensive personal recording studios, and file sharing networks will probably bring on a huge increase of music, both compositions and recordings.

I think what we're seeing is that an artificial situation which has been created only during the past 100 years or so is swinging back into equilibrium. What we are really going to see is a renaissance of music, as music gets closer to its original humanity. Music was originally not just about listening, but also about playing. It was also about people interacting with each other, whether as musicians or as an audience responding to musicians and each other.

Anyone who has been to a live concert knows that this really hasn't been lost. Although today's superstar musicians are typically more isolated from their audiences than they have been over the long history of music, there is still an energy present at a live concert which is not there in a recording.

My conclusion is that what's happening to music because of the Internet is really a search for the true value of a recording. An externally imposed standard has raised the value of something which is fundamentally not very valuable to an inflated worth. What I suspect we will find is that listeners will demand more variety in recordings, and perhaps they will also demand real-time concerts or even individual performances which will eventually become interactive. I'm not pretending to understand how this will come about, I just think it's the eventual outcome.

Now let's look at money and see if we can see any similarities. Money historically has two properties: it is a medium of exchange, and it is a store of value. However, over the past hundred years, we have totally lost the concept of money being a store of value, and have even taken it to a new extreme of worthlessness: now it's simply an intangible digital phenomenon. Since it has no intrinsic value, its worth is determined by only one thing, which is trust.

I am beginning to see some cracks showing in the system. These cracks are from an eroding trust. Things like frozen bank accounts, forced currency devaluations, and stock market losses wiping out individuals' retirement plans have got to eventually force people to realize that money isn't what it used to be. I think eventually people will decide that they can't entrust their money to the people who now hold it. Money is still generated by most people by their work. The fact that the fruit of their labor and life can be wiped out instantaneously by accident or market movement is amazing; the fact that most people accept this as part of the risk of thjeir daily existence is even moreso.

What I am suggesting is that we will see the Internet bring this back into an equilibrium which will be very far from the current state of affairs. How will this happen? Again, I don't pretend to have the answers. But maybe we can get a clue from what's going on in Afghanistan.

One of the ways money is transferred outside of the "normal" banking system is by hawala. This is the Arabic word for "transfer". You can read the whole World Bank report on how it works in Afghanistan here. from the paper:

"A hawala transaction, as defined in this paper, encompasses financial transfers made by principals, or
customers (Customer A, or CA, and Customer B, or CB) located in countries A and B, through hawala
service providers in their respective countries. These providers (designated hawaladars HA and HB) operate
outside the formal financial sector, regardless of the use or purpose of the transaction and the country of
remittance or destination. Typically, HA receives funds from CA and asks HB to advance the amount to CB
in the local currency equivalent. In a prototype hawala transaction (figure 1), an expatriate worker (CA) uses
a hawaladar (HA) to arrange a remittance to his home country. He makes payment in dollars or another
convertible currency to this intermediary. This individual contacts a hawaladar counterparty (HB) in the
receiving country, who arranges payment in local currency to the remitter's family or other beneficiary (CB).
Obviously, some network of family or connections among hawaladars is required to make such a system work
consistently and on a large scale."

Although the typical mode of transfer is via telephone or FAX, it could very well be done over the Internet. Another excerpt gives a clue that this may actually be happening:

"Scope


"The money exchange dealers provide a diverse range of financial and nonfinancial business services
in local, regional, and international markets. Financial activities include money exchange transac-
tions, funds transfers, micro-finance, trade finance, and deposit taking. Nonfinancial activities may
include telephone and fax services, regional and international trade assistance, and, more recently,
internet services. No clear delineations exist among any of these business activities..."

More interesting details:

"The Kabul money exchange market, where most of the city's hawaladars operate, has an eighty-year-old history. 
Established along the Kabul River, it is near the gold and silver bazaars and financial service offices used 
by the precious-metal traders; Kabul's other specialized markets all are within walking distance. 
The money exchange dealers have traditionally provided traders with a range of banking conveniences, 
including currency conversions, international and domestic money transfers, deposit-taking services, 
and more recently communication facilities--for example, satellite telephone, fax, and e-mail.

"Reliability

"The hawala system is reliable. Dealers seldom fail to effect payment. Beside the expected high stan-
dard of adherence to unwritten but nevertheless well-established codes of business practice, default
risk is eliminated through a variety of hawala dealer selection criteria adopted by users (see Annex 1
for select criteria), and operational usage procedures (see Annex 2 for select procedures), particularly
the "confirmation before payment" procedure."

"Documentation

"There are no standard documentary requirements for conducting hawala transactions, and the
hawala association does not require its members to open their books for external inspection, nor
does it require periodic financial reports. Standardized documentation and reporting are consid-
ered unnecessary because of the high level of trust that makes the system viable. Dealers know that
any failure to honor contracts will result in immediate blacklisting, and possible expulsion, from the
market."

The most striking things to me about how this differs from the "normal" banking system is that the system is usually concerned with physical delivery of notes, and it exists outside of the normal banking system and channels. Given the proximity of the hawaladars to the precious metals markets, there is no reason that the system could not (or for that matter, already does) use the historical money of gold and silver to complete transactions. Note that the system works well even though "Afghanistan's formal financial sector is virtually non-operational (first sentence from the introduction)."

What I am saying here is probably not even on the radar for most people. The West's financial system functions very well, for the most part with great efficiency and reliability. But it is dependant on everyone trusting banks and other financial institutions to keep their money safe. In the case of the war-torn country of Afghanistan, this system no longer functions, and most important transactions are done by this very old system of Hawala. It is based on a different trust. This system involves person-to-person, virtually simultaneous physical transactions, which could easily be converted to Internet usage. It is a system which has adapted to radical change very quickly. There is something to be said for that in our current environment.

With everything else that's going on these days, I for one am going to keep a close watch on what's going on in the Western banking system. I'm going to watch for hints that these same monetary electronic impulses, which in the case of music have lost much of their over-inflated value over the last few years, are starting to lose their virtual luster. It's only been a few years since The Napster went on line. If something similar happens in the financial markets, the world will change very quickly indeed. And if the history of msuci file sharing gives us any indication, once started it will not be easily stopped.