The future of digital currencies

“Ah, but now it’s Digital.” “Digital” a word whose origin is found in the Latin digitalis, from digitus (“finger, toe”); now its use is synonymous with computers and televisions, cameras, music players, watches, etc, etc, etc. But what about digital money or even digital democracy?

The printing press caused a revolution in its time, hailed as a democratic force for good by many. The books available to the masses were indeed a revolution; and now we also have electronic books and technological devices to read them. The fact that the original words have been encoded numerically and decoded electronically doesn’t mean we trust the words we’re reading any less, but we may still prefer the aesthetics of a physical book to a high-tech piece of plastic. it needs to have its battery charged to keep working. Can digital currencies like bitcoin really contribute to positive social change in such a spectacular way?

To answer this, we must ask ourselves what happens to money, how we should understand it, use it and incorporate it into a sustainable model of a ‘better world for all’. Money, unlike any other form of property, is unique in that it can be used for anything before an event occurs. It implies nothing, yet it can be used for great good or great evil, and yet it is just what it is despite its many manifestations and consequences. It is a unique asset but very misunderstood and misused. Money has the simplicity of facilitating buying and selling, and a mathematical complexity as demonstrated by the financial markets; and yet has no notion of egalitarianism, moral or ethical decision-making. It acts as an autonomous entity, but is both endogenous and exogenous to the global community. It has no personality and is easily replaceable, but it is treated as a finite resource in the global context, its growth governed by a complex set of rules that determine how it can behave. However, despite this, the results are never completely predictable and, moreover; a commitment to social justice and an aversion to moral turpitude is not a requirement for its use.

For a currency to effectively perform the financial functions required of it, the intrinsic value of money must be a common belief among those who use it. In November 2013, the US Senate Committee on Homeland Security and Government Affairs recognized that virtual currencies are a legitimate means of payment, an example of which is Bitcoin. Due to the very low transaction fees charged by the ‘Bitcoin network’, it offers a very real way to enable the transfer of funds for migrant workers sending money back to their families without having to pay the high transfer fees currently charged by the companies. A European Commission calculated that if the global remittance average of 10% were reduced to 5% (the ‘5×5’ initiative endorsed by the G20 in 2011), this could generate an additional flow of US$17 billion to developing countries. ; the use of blockchain would reduce these fees to almost zero. These money transfer companies that extract wealth from the system can be disintermediated through the use of such infrastructure.

Probably the most important point to note about cryptocurrencies is the distributed and decentralized nature of their networks. With the growth of the Internet, we may only be seeing the ‘tip of the iceberg’ with regard to future innovations that may exploit undiscovered potential to enable decentralization, but on a scale never before seen or unimagined. Therefore, whereas in the past, when a large network was needed, it could only be achieved using a hierarchical structure; with the consequence of the need to hand over the ‘power’ of that network to a small number of individuals with a majority interest. Bitcoin could be said to represent the decentralization of money and the move to a simple systems approach. Bitcoin represents as significant an advance as peer-to-peer file sharing and Internet telephony (Skype, for example).

There is very little explicit legal regulation for digital or virtual currencies, however, there is a wide range of existing laws that can be applied depending on the financial legal framework of the country for: Tax, banking and money transmission regulation, Securities regulation, Criminal and/or civil law, consumer rights/protection, pension regulation, commodity and stock regulation, and others. Therefore, the two key questions facing bitcoin are whether it can be considered legal tender and, if it is an asset, it is classified as property. It is common practice for nation-states to explicitly define currency as the legal tender of another nation-state (eg US$), which prevents them from formally recognizing other ‘currencies’ as currency. A notable exception to this is Germany, which allows the concept of a ‘unit of account’ which can therefore be used as a form of ‘private money’ and can be used in ‘multilateral clearing circles’. In the other circumstance of being considered property, the obvious discrepancy here is that, unlike property, digital currencies have the ability to be divisible into much smaller amounts. Open and developed economies are generally permissive with digital currencies. The United States has issued the most guidance and is highly represented on the map below. Capital controlled economies are indeed, by definition, contentious or hostile. As for many African countries and some others, the issue has not yet been addressed.

Starting from the principles of democratic participation, it is immediately evident that bitcoin does not satisfy the positive social impact component of such an objective insofar as its value is not something that can be influenced but is subject to market forces. However, any ‘new’ cryptocurrency can offer democratic participation when the virtual currency has different governance and issuance rules based on more social democratic principles.

So what if a “digital” currency could provide a valid alternative to existing forms of money by playing the role of contributing positively to: the goals of promoting a socially inclusive culture, equal opportunities and promoting mutualism; Which, as its name indicates, are alternatives and/or complementary to an official or sovereign national currency? Virtual cryptocurrencies like bitcoin are a new and emerging dynamic in the system; although in its infancy, the pace of innovation in the field of cryptocurrencies had been spectacular.

There are many factors that determine the ‘effectiveness’ of money in achieving positive social and environmental change; the dominant political ideology, the economic environment, the desire of local communities and individuals to seek alternative social outcomes while seeking to maximize economic opportunity, building social capital, and many others. If a local digital currency could be designed to build additional resilience in a local economy and improve economic outcomes, then introducing it more widely warrants investigation. When the current economic system does not comply, it manifests itself in ways such as: greater social isolation, higher crime rates, physical neglect, poor health, lack of a sense of community, among other undesirable social impacts.

Is the future digital?