Digital Bank by Skinner Chris

Author:Skinner, Chris [Skinner, Chris]
Language: eng
Format: epub
Published: 2013-10-19T00:00:00+00:00

The Rise of Digital Money

Cash is one of the last bastions of the traditional financial servicing yet, with mobile wallets, ebanking, contactless everything and real-time transactions, does cash really have a future? Some say ‘yes’, due to the unique attributes of cash, as noted in a recent Payments Council report on “the Future of Cash”:

Cash circulates, and is reused limitlessly.

Cash is always valuable.

Cash provides full and final settlement of a transaction.

A cash payment is anonymous.

Once issued, the circulation of cash is uncontrolled.

It is regarded as a public good by its users.

These attributes have never been completely substituted by new forms of payment and, until they are, cash will always be prescient.

The most recent attempt to provide a good alternative is Bitcoin.

Bitcoin is the world’s first, and so far only, decentralised online currency. Instead of a central bank issuing the currency, Bitcoins are issued by anyone with a computer or smartphone, and are issued using encryption algorithms. In other words, extremely difficult mathematical problems are incorporated into each coin and transactions are cryptographically authenticated.

This makes Bitcoins a combination of a commodity and a fiat currency, with the creation of Bitcoin dating back to 2008 when Satoshi Nakamoto published a white paper about a peer-to-peer exchange of value for the internet age. [28]

The coins are digital currency designed to be controlled through encryption, rather than a centralised authority, and potentially operate in exactly the same way as cash. Bitcoins are fully exchangeable as an anonymous form of currency in real-time across the internet and Point-of-Sale, with core features that they can be:

Sent to anyone with a Bitcoin address;

Accessed from anywhere with an Internet connection;

Anybody can start buying, selling or accepting Bitcoins regardless of their location;

Completely distributed with no bank or payment processor between users (this decentralization is the basis for Bitcoin’s security and freedom); and

Transactions are free (for now, this will change).

You can buy Bitcoins quite easily through various exchanges with the Japanese MTGox exchange being the most liquid. In order to buy coins, you send payment to your MTGox account in pounds, dollars, euro, yen or other currencies, and then buy them at the strike price of the day. Once you have some Bitcoins you can then trade them with anyone who accepts the coins, with no charges for the transaction. This is the key attraction of Bitcoin as, once purchased, you never pay a cross-border or bank fee again as no borders or banks are involved. In other words, it is a global currency for the internet age.

There are also other exchanges such as Bitcoin-24 or Intersango, and many of these exchanges are talking to regulators to be recognised as official trading venues, with Germany and France providing official endorsement of Bitcoins as a medium of exchange in 2013. Once you’ve transferred the coins you can buy all sorts of stuff from pizzas to houses, although the number of outlets accepting Bitcoins has been limited to date. Nevertheless, it is gradually expanding in usage and, as mentioned, you can use Bitcoins at Point-of-Sale.

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