By elmads

What is an economy? Wikipedia.com defines “economy” as a system of making and trading things of value. It is usually divided into goods (physical things) and services (things done by people). It assumes there is medium of exchange, which in the modern world is a system of finance.

This topic gives headaches for most the of us, especially for the ones who doesn’t have any interests in finance and economics. Nevertheless, there is a simpler definition of it that everyone would understand and relate.

An economy is not about money, it is about the continuous decisions made by the people, which is related to our own resources.

Remember that money is only a tool to attain what we really want in life, buying those products and services for a certain purpose either for our own happiness, needs or short-term desire. Hence, decisions made related to our own behaviour and beliefs. That’s a more like it definition of economics.

That being said, our lives immensely improves as technologies keeps on advancing. Faster communication, vast array of food choices, faster and more efficient transportations and better housing. These are all for the sake of a comfortable life of our society.

All of it became possible due to advancements in our technologies, but one thing also happened. The digital economy was born.

What’s the difference between Digital and Traditional economies?

There has always been a mix up regarding these two economies. To understand both we’ll need to define each one of them.

• Traditional economy – It is the “Physical” products and services that all people buy and sell with, such as hard cash, cars, home, laptop and more.

• Digital economy – It is the “Digital” products and services that individuals buy and sell within the digital space, such as online courses, non-fungible tokens, digital transactions with digital cash, online & mobile games and more.

In a nutshell, if the transactions you made has a physical form then that’s a trade within the traditional economy, but if there is none then that’s digital. In our current world, we do both in one transaction.

The Likes and Dislikes

Both economies have are important, but not everyone likes the digital space. This mostly depends on the generation you lived in.

The older generation still prefers the traditional type of economy because they’ve lived their whole lives with it, they dislike the idea of learning the complexity of the digital space, and they do not feel secure with it. Whereas, the younger generation lived their lives with the advancements of technologies, they never experienced a life without the internet.

Most of us know about the traditional economy already, whereas others still do not comprehend the digital space.

The Digital Economy

From the word Digital, it is any piece of technology that connects people and machines with each other or with information. The important words here are ”Connect & Information”. All things in the digital space are all about the two words.

Before the digital age came, we only had ourselves. Centuries ago, our ancestor’s way to communicate information is to physically talk to another person, or to a group of people in order to relay a message. That message is expected to spread as person A tells person B, then person B tells person C, and so on and so forth.

In the tribal villages before, there is a person called the messenger who is tasked to go from one village to another in order to pass an important message to everyone else. This task done by the messenger takes a lot of time, effort and physical energy expensed.

This is what the digital economy significantly reduced, it is the time, effort and physical energy needed by the people to “Connect and Communicate Information”.

Information and connection will always be essential. Do you want to sell a product or a service? then you need to communicate the infromation that you are selling your own product or service to a person, group of indviduals, a small/medium business or a large company for them to check on it, and hopefully purchase what you are selling. This is marketing in a nutshell.

Furthermore, Digital economy transactions are based mostly on the non-physical items. I know what some of you are thinking, who in this world would buy items that we cannot even feel and touch? Well, that’s not entirely true, valuables are not just based on the physical products, but also on the things that makes us happy even if there is no physical representation. It is the value of a non-physical items give.

In the 1980s, game consoles such as Atari and Nintendo’s Family computer have been invented. Yes, people bought a physical item which is the console, but the value doesn’t lie in the physical console, it is from the games that were played. The console was just a tool to show a game that was made through codes and energy usage. Sure, you would not utilize that game console without turning it on. So, what gave value and happiness in it, is not the console itself, but the data of the game. Those consoles where bought in the traditional economy, but what people didn’t realize was, that was already the start of data being accepted as a product and service that gives value to the people.

Today, there are a lot of transactions being made in the digital space thanks to the internet. One of the best examples are the streaming subscriptions like Netflix, HBO Max, Disney Plus, and more. Have you ever asked yourself what are you really buying? most of you will agree that what we purchased is the entertainment of a vast array of multimedia contents such as movies, documentaries, and series.

Yet, when we think of it in a deeper sense, what we purchased are actually a collective of information that we can watch anytime of the day, which are all stored in a columns of supercomputers stored in a data centre. What we purchase is the non-physical item of data that are being sold to us, as a service by a particular streaming company.

Did you receive any physical items when you subscribed with Netflix? how about when you subscribed with Spotify? or when you bought mobile games in your phone? how about when you bought new skins in Fortnite (did you wore the skins you bought in it? or was it your digital character who wore it instead?). How about your cryptocurrencies? can you please show me the physical coin?

These digital transactions for digital items and services have been receiving misconceptions and backlash for a couple of years now. There are still people who cannot fathom how a non-physical item can have value into others lives. They think that it is a waste of money, time and effort to do so, when in fact there is only money and time, but almost no effort needed in this economy. What amazes me is that some disagree with it, but have been transacting in it for a few times already via the subscriptions.

That being said, the digital economy consists of multi-millions of transactions per day, by people who exchange money for data being sold and serviced to them.

The Digital & Traditional Economy, together.

In today’s age, traditional economy works hand in hand with the digital economy very well. We live in a world where both economies have a synergistic relationship. People don’t notice it, but we do cross transact in the two economies. This is what we do most of the time now, thanks to e-commerce and the internet. We purchase in the digital economy and receive the item we purchased online via deliveries to our own home, such as online shopping in Amazon. Or, we purchase in a brick and mortar shop then we’ll be be able to pay digitally without us requiring to use our physical debit/credit cards.

One example is the Amazon Go, in which you register your information into their specified website, then you could enter their brick and mortar supermarket and take whatever products you need, then just leave afterwards once your done. The price of all the goods you bought will be automatically scanned in the exit area and be digitally deducted in your bank account.

Another example is the basic mobile data top up we purchase in some telecommunications company shops. We pay for a certain physical amount of money in exchange for the data that they will send to our smart phones. Once the transaction has been completed, that’s when we will be able to use that newly top up data for our internet usage.

To sum it up

Economies are built and improved for the sole purpose of making people’s lives better and easier. This is also the reason why technologies have been evolving as well, from the prehistoric tools made by our ancestors, to the industrial revolution and to our current digital age.

Time is absolute, it will always move forward, it will never wait for us, and with that comes change. As human beings ourselves, it is innate that we protect ourselves in order to survive, but we also must not forget that we should adpat to change. It is how we will survive and improve at the same time.

It doesn’t matter if the traditional economy will cease to exist in the future or if the digital economy will not work. Instead, we must ensure that we will be able to leverage whatever outcome may happen in the future. There will always be opportunities in both economies. Let’s continue to learn in order to find and grasp those opportunities.

Knowledge is my Sword and Patience is my Shield,

elmads

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.