Bitcoin (Smartmoney) Is Here To Stay

Screen Shot 2018-01-08 at 1.36.16 AMCryptocurrencies are not a bubble, not a Ponzi scheme, and not a flash-in-the-pan, here-today-gone-tomorrow phenomenon.  Cryptocurrencies (think Bitcoin) are here to stay.  They are the next generation of money.  As fiat currency (paper money) disappears, we use checks less and less, we use debit and credit cards more and more, and we send and receive money via all sorts of electronic methodologies, it is quite apparent to me that we are moving towards virtual currencies.  In fact, we’re moving not just to replace dollars with virtual dollars but we’re moving towards a state where we have many different currencies to handle many different situations, many different circumstances that we will use throughout the day, throughout our lives (think Airmiles).

Have you ever wondered why we bother to purchase Metrocards to use in the subway?  Why don’t we swipe our credit or debit cards through the turnstiles directly just as we swipe our Metrocards?  The answer is because the Metrocard is doing something a Mastercard or Visa card can’t do.  The Metrocard has an ID number embedded in the magnetic strip that tells the system who is using the card or under what conditions the card is to be used.  If you purchased a monthly MetroCard, the card might look the same as any other MetroCard but the ID number lets the system know that you have paid for the right to travel in the system for a period of one month.  You are free to use the system as much as you want during that time.  Your debit or Visa card doesn’t have that kind of ID number nor can it hold that kind of information.  The ‘contract’ you have with the system is unknown by the transit system.

In a future world, that sort of unintelligent ‘money’ is unacceptable.  We are living in a world that is and will continue to be more and more dependent on ‘intelligent’ interactions between the systems we use. The transit systems, including buses, subways, taxis, airlines, water taxies, highways, tunnels, and bridges, will be smart systems which will allow us to establish ‘contracts’ with them.  These ‘contracts’ will be like the Metrocard ‘contracts’ for different rates at different times, for different periods of time, for different numbers of people, at different rates depending on the age of the user, to what use it is being put, and for what duration it is to be used.  The money will have to keep pace with these types of contracts.

We have EZPASS in the Northeastern United States for paying highway, bridge and tunnel tolls.  The system automatically replenishes our accounts without our direct involvement.  When our automobile passes through one of the EZPASS readers, the system knows what our ID number is and what ‘contract’ we have with the system.  Similar systems will appear in the coming years for other systems that we use.  There might be one for parking your car, buying and delivering food, taking taxis, using music, downloading information, buying online, vacationing, renting hotels, renting sporting equipment, online gaming, online gambling, education, going to the movies, renting furniture, renting art to hang on the wall, taking singing lessons, learning to skydive, and ordering a babysitter.  The list is endless.  Are you getting the idea?  The way we will conduct our lives in the future will be systematic, without currency, by a computer, online and by a ‘contract’ which is a set of guidelines agreed upon by both the party ordering the goods or service and the system or party delivering the goods or services.  To facilitate those transactions will be virtual currencies.

Why We Aren’t Using Debit Cards at Subway Turnstiles

MetroCard.SVGThe 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.