Killing off cash
April 30, 2012 Written by James Middleton
One recurring point made by almost everyone we spoke to for our mobile money special, was that cash is of no value to anybody in this ecosystem. The cash value chain features the smallest number of participants – the buyer and the seller – with no opportunity for anyone else to skim a wafer thin transaction charge off the top. Moreover, cash is seen as inconvenient and insecure, and some might argue it’s on the way to getting a bad rep as a payment mechanism. So will digital triumph by virtue alone?
Digital currency on the other hand is effectively a non-political monetary unit that shares something in common with cash – it has to be completely anonymous. If you ‘lose’ your digital currency, it’s gone, just like dropping a banknote in the street.
MintChip, although it is digital, is backed by the Canadian dollar and centrally distributed by the Mint, which in some eyes, puts it at a disadvantage. Since most of the world abandoned the gold standard in the 1970s and currency instead became fiat money – that is to say, currency with a value controlled by the government — there is no limit to the amount of money that can be issued. Fiat money is also susceptible to the effects on inflation from a single entity, such as a government.
Conversely, Bitcoin– a somewhat controversial but truly digital currency – claims to have solved the issue of state interference and anonymity, using a decentralised distribution system and an absolute limit of 21 million Bitcoins. Bitcoin is not backed by anything, but its value comes from its scarcity, like gold. Each coin is divisible by a factor of eight, and the currency’s supporters expect that as some coins are irretrievably lost, the value of the remaining coins will be pushed up slightly. While the decentralised nature means that no one entity can have an impact on inflation of the currency.
The currency has its detractors, which believe that Bitcoin’s lack of an underlying power base puts the currency on thin ice. But for many investors, this is exactly what attracts them. Anecdotal claims suggest that a large percentage of professional investors have bought into Bitcoin and are seeking to invest in related start-ups.