We are fast approaching the “post cash” world. And while that may seem a little far-fetched to you, especially libertarians, I argue: When last did you find yourself without change for the homeless person on the street corner, or to pay for the parking metre on your high street? It is very likely you found yourself in such a scenario just this week, if not even today.
The decline in use of physical cash has been so dramatic in modern years, that just recently the US government had to encourage their citizens to use it again!
But what are our options going forward? Are we stuck to the confines of our bank accounts, and therefore the trust these banks require of us? After all, when you draw $1000 out of your bank account, that is now your property, and it is entirely up to you as to what you do with it. You can choose if you want to “loan it back” to your bank, or use it to buy something of value, or store it safely on your own premises. How would we achieve the same sovereignty in a cashless world?
Enter “digital currencies” and cryptocurrency.
Digital currencies live in a realm beyond that of standardised central banking. Regular internet banking by a centralised corporate bank simply involves the transfer of value via digital accounting methods. But this value transfer is within the ecosystem of that corporate bank, and thus these banks can impose fees on any transaction they like within said ecosystem (even remove the value entirely – like they did to Greek citizens in 2015). Whereas with physical cash, you can take it, give it, and store it wherever and whenever you like.
Digital currencies, or cryptocurrencies, actually have more in common with physical cash than they do with internet banking profiles, because they do not need a central bank or point to facilitate them.
“We are seeing governments look at their very own cryptocurrencies,” Jan Ludik, CEO of Traderoot explains. “Just recently, the government of Barbados announced the first real world trial of what is technically their own cryptocurrency. This is a huge step in the next phase of money.”
Cryptocurrencies act differently to standard digital or internet money because they can operate outside of a central database, using what is now commonly known as “blockchain technology”.
“A blockchain is simply a decentralised version of a computer database,” Ludik explains, “this decentralised database technically means anyone can access it and make use of its service.”
Not all blockchains are as accessible though. There are two forms of blockchains being deployed by corporates and governments alike: Permissioned and permissionless. The phrases speak for themselves, but indicate the nature of the two contrasting types.
What is happening with governmental implementation of blockchain technology is being labeled as “central bank digital currencies”, or CBDCs, and is very much a permissioned form of infrastructure. But in theory: A CBDC would have all of the properties of cash.
As alluded to earlier, think of the uses of cash: You can give it to anyone you like; a homeless person, your three year old daughter, or even a “not yet legal” immigrant working at a local restaurant. None of the subjects of these examples would be able to open a bank account, at least not without rigorous “know your customer” (KYC) protocols and waiting times. With cash, however, the exchange is instant.
In a future where all money is digital, waiting for a bank account will just become far too laborious, and such a process will exclude millions of people from the economy.
With a cryptocurrency, or “digital currency”, the need for opening a bank account would be unnecessary. People would be able to spin up a wallet within seconds on their phones, and receive the digital tokens in their downloaded wallet in just as short a timeframe. Users would then be able to receive their salaries with this token, and start to receive payments, without the need for a bank account.
It is becoming increasingly clear that digital currencies are part of the financial future, and those traditionally sceptical of new technology must embrace them.
Where does this leave traditional banks, though?
Angus Brown is the co-founder of one of South Africa’s leading rewards programs, eBucks, and is currently serving as CEO of Africa’s leading cryptocurrency wallet Centbee. He says that it is likely traditional banks will pivot to a focus on their ability to offer financial services.
“Banks’ best services will now be in offering loans, credit cards, and investment products,” Brown says. “Whilst true digital currencies look likely to establish themselves as the means of transaction, especially the central bank versions.”
When he refers to a “central bank”, Brown says he is referring to the reserve bank of a national government, such as the USA’s “Federal Reserve”, not necessarily a corporate bank operating as a private company.
The transition to digital currency seems to be well underway, and while we’ve lived in the world of “internet banking” for almost two decades, we’ve never been able to have a sufficient digital equivalent of cash until now. Blockchain technology and its unique decentralised nature coupled with its complex encryption methods is now providing an infrastructure that is making digital cash a reality.
What a cashless world means for those without access to a smartphone however, is a philosophical question we shall have to ponder at another time…