Money, Money, Money

A great set of interviews at Spark on the future of money.  Ever since the adoption of paper money, one of the core elements of print culture has been printed money.  Money now takes an almost absurd panoply of virtual forms today, but paper money still reigns as the default everyday form of currency.

The really interesting question raised at Spark is what happens when virtual forms of currency (credit, debit, junk bonds) no longer have a paper analog. It’s an interesting thought experiment. What if people just started paying each other online in a new digital currency, such as Bitcoin? That’s how money began in the first place.  Hey, I’ll give you this if you do that for me.  You say yes because “this,” whatever it is, can be used somewhere else to get you something.  The two bedrocks of money are exchangability — that it is widely acceptable — and security — that is not easily counterfeitable, that it counts for something.  If everyone can have as much as they like, then money is worthless.

For skeptics, digital money is always too prone to security risks. Won’t hackers constantly be creating vast sums of Bitcoin to get whatever they want in life?  But think how unreliable print money is (central banks build in a certain percentage of counterfeit money into their models) and then think how unreliable credit cards are with the high degree of fraud (four times and counting for me).  For the general user, would cryptography be any less secure than these material practices?

The other big issue is exchange.  But here too the advantages might outweigh the risks.  Sure, not everyone may take your “Bitcoins.”  But once people started to take them, others would probably follow suite.  That’s the beauty of money — everybody always wants more of it (“that’s why they call it money” says Danny Devito in David Mamet’s The Heist). And unlike normal currencies which are limited to countries and have high exchange costs, a digital currency could conceivably be universal. No more hassle of changing money and paying exorbitant fees to do so.

The real reason many are afraid of digital currency is that it would be so hard to regulate — and tax.  If I give you this for that, how is a government going to create a system of regulation that both controls the supply of money and creates mechanisms to take some of it away from me? The very technology used to encrypt money for its security could be used to make it impossible to tax.

Now it’s not going to happen overnight. There is a huge amount of wealth out there in the analog world. Not everyone is going to want to leave that behind.  But I can easily see the gradual build-up of an online world of exchange, one that is free from taxation. Once it becomes large enough, though, will governments want to get their hands on it? And will we need a new central bank of Bitcoin to ensure the stability of the universal currency? And once that happens, will we create a new online currency?  The wheel’s on the bus go round and round…

Maybe the answer is good old printed cash.