The world of finance is changing. When is the last time you wrote a check? Could you find your checkbook if you had to? When is the last time you used cash? In Manhattan, where I live, the only time we use cash is when we leave the city or purchase something for under $5. I get cash at an ATM once a month. Remember when we were asked if it was a debit or credit card? Not anymore. I am seldom asked to sign receipts. Swipe! The transaction is complete.
Paper and coin, what is referred to as fiat currency, is used less and less. Most financial transactions are now virtual. We store virtual currency in a virtual bank account which I inspect virtually, online. I keep stocks and bonds in the same way. If I want to pay someone from my virtual bank account I have the option of sending them a virtual check which they deposit in their virtual bank account. If we ever need proof that the virtual money represents the ‘real’ thing, we go to the bank and ask to get paper and coin currency as proof. But we seldom need to do that anymore, so comfortable are we with the concept of virtual money.
So why all the fuss over a new asset class, cryptocurrency, another form of virtual money? “What is Bitcoin?” “What can you do with it?” “Bitcoin doesn’t represent anything.” These are the statements I’m hearing. What is money? What can you do with it? Buy things? What do you want to buy, a house? a car? You can do that with bitcoin now. “What if it disappears?” “What if the government declares it to be illegal?” It won’t disappear. It’s now a global phenomenon larger than General Motors or Walmart or Exxon Mobil. Some countries did declare bitcoin illegal, at first. Now most of them have changed their minds. In fact, we will need this form of currency. That’s the real story here. Cryptocurrency works in a way that other currencies don’t. It might be difficult to understand the differences, but understanding them is critical, and, explain why bitcoin isn’t a bubble or going away anytime soon.
Our culture uses computers more and more. As we do, more and more programs have something to do with money. Those automated computer programs working with money can do so in much more fluid, dynamic, and fast-paced ways than we can manually. We can pay for renting milliseconds of machine-time. We can make micropayments by the column inch. If we drive through a congested area during peak traffic times, our EZPASS can pay a higher rate. These are examples of dynamic financial transactions already in our daily lives. There are others we NEED to be doing but our fiat currency won’t let us.
For example, why don’t we pay for the subway with our debit cards directly? Why do we bother with Metrocards? The answer is: credit and debit cards cannot understand the dynamic purchases that we make. How can we pay for a monthly subway pass at the turnstile with a debit card? Not possible. The turnstile would not know the difference between a one-time purchase and a monthly purchase. But with a Metrocard, the system can look up your account and determine the conditions of your card and purchase. It is this type of dynamic purchasing that we will be doing for just about everything. Driverless cars will be rented by the month. Subscriptions will be based on the amount you watch, or read, or listen to. Your computer is talking to mine. Finance is becoming more dynamic and our currencies must change right along with it.