As someone who can recall the intricate details of The Faraway Tree but forgets to pack underwear for a weekend trip, I have often been referred to as an absent-minded professor. Being forgetful of the more useful things in life has its downsides, so when my bank issued me with a shiny new debit card a few years ago, I was happier than Rebecca Black on a Friday. No longer did I have to fret about forgetting the paper in my purse. There was only one downside; forgetting the card is as useless as forgetting the cash. In a world where the Internet is only a cellphone away, the concept of digital currency might be a solution for the Walter Bishops among us.
The Canadians have been busy with money, eh? At the end of March, the country announced its plans to stop the circulation of the penny and a little over a month ago the Royal Canadian Mint introduced their take on digital currency. MintChip is a digital representative of the Canadian Dollar and the RCM is currently holding the MintChip Challenge. Software developers are invited to come up with digital payment applications using the technology. The winning idea will be announced in September this year.
If the project takes off, consumers will be able to spend small amount of money digitally. Using a chip, consumers would load secure value onto their smartphone, USB device, tablet, computer or cloud without any personal data being required or exchanged.
If one compares MintChip to Bitcoin, it’s not really a digital currency at all but rather a digital wallet. MintChip is simply a way of exchanging Canadian dollars, and at some point other currencies, by means of an anonymous and secure system. Bitcoin, on the other hand, is a decentralised digital currency.
The rise and fall of Bitcoin
Bitcoin’s economy is made up of a network of its user’s computers. At present intervals, new bitcoins are released into the network. Some user’s computers validate transactions by cracking cryptographic puzzles and earn new bitcoins for doing so. These can be stored in a virtual wallet, on a desktop computer or to a centralized service in the cloud. Users download the Bitcoin app and can spend the currency with merchants who accept it.
When Bitcoins started trading in April 2010, their value stayed below 14 US cents. By the time Gawker exposed Silk Road in June the following year, it had surged to $27. As the price of bitcoins grew so did the fly-by-night wallet services that popped up promising to safeguard client’s assets.
Later, a Tokyo-based exchange site called Mt. Gox, which handled 90 percent of Bitcoin transactions, was hacked and a massive sell-off was simulated. This resulted in the exchange rate falling to zero, from which Bitcoin never recovered. The Bitcoin Rand value currently sits at R42.69 to one.
Many other disasters followed and what was once regarded as revolutionary is now largely considered ridiculous. Bitcoin has, however, managed to prove its exchange value without being backed by anything.
The future of digital cash
The whole point of digital currency is to widen the scope of issuance and adoption of alternative, non-political monetary units. MintChip is simply taking official money and making it into a digitized form that can be as useful online as it is off. In fact, most electronic cash models revolve around already existing State-issued currency.
The benefits of a cashless society have already been and continue to be debated. For one thing, digital cash costs less. States will save money from not having to produce physical bills and coins. Canada will save $11 million a year alone from not having to produce the penny. Digital cash also means that people no longer have to carry purse-fulls of heavy coins and dirty notes. In Sweden, where cash only represents 3 percent of the economy, the number of bank robberies has plunged from 110 in 2008 to 16 in 2011.
With reduced costs and crime, and increased convenience, one wonders why the move isn’t being made faster. The question is will government let it?