The Future of Money

The scene is a restaurant: A waitress has just left the check on the table for a group of friends dining together. Mobile phones are pulled out and the diners take turns scanning the code on the bill. One person slips something that looks like a credit card out of her wallet. Fingers tap on several dark squares, which light up when her personal code is activated.  The card – an intelligent check — is waved over the bill and debited. Just beneath the charges for food is a space for tips. The waitress prefers to be compensated in Facebook Credits, an alternative digital currency called Ven, or transferable frequent flyer miles, any of which can be automatically placed into her linked accounts with the tap of a diner’s finger or the wave of a mobile device.

 Such a future, described last September at Sibos, an annual meeting of over 9000 banks organized by SWIFT, the global financial services provider, is not so far off. Mobile payments and alternative currencies such as Ven, Bitcoin, Ripple and Flattr are already gaining traction, shaping the future of money and widening the way the world determines and trades value.

“Banks have to care about this because people value these other currencies, in some cases more than cash,”  says Heather Schlegel, a New York-based member of Innotribe, SWIFT’s innovation team.  “Consumers are going to make transactions using different currencies and banks are going to have to get with the picture, since there are a ton of service opportunities here.”  To that end, SWIFT is now organizing competitions across the globe to find start-ups that can help forge the future in this area and others. (See http://innotribestartup.comfor details.) “We are trying to do matchmaking between start-ups and financial organizations and banks – a lot of the start-ups want to disrupt and the banks and financial institutions do need to innovate and provide new technologies and services,” says Schlegel.

Digital currencies are not new. Start-ups like Beenz and Flooz were around as far back as 1998 but disappeared by 2001. The latest entrants may have more success because they are succeeding in blurring the lines between the physical and digital worlds, causing banks to sit up and take notice.

Take the case of Ven. There are now some 8 million Ven in circulation with a value of more than $800,000 USD. Hub Culture, a London-based social collaboration network revolving around the Ven, says it is possible to buy over $100 million in goods and services with its digital currency, such as a room in the Lesic Dimitri Palace luxury hotel in Croatia (see photo). The use of the Ven is now expanding into Asia, adding goods and services in Vietnam, China and Thailand. While you can’t change Ven – the only virtual currency trading inside Facebook other than Facebook Credits — back to cash, you can use it to buy property, cars, coffee or carbon credits.

And the Ven is now being traded alongside other currencies on Thomson Reuters terminals, yet another sign of how alternative currencies are going mainstream.

Then there are Facebook Credits. Futurists, like Vanessa Miemis, believe it will not be long before the popular social network site’s credits are used to buy more things in the physical world. Some have even gone so far as to predict that more people would use Facebook Credits than the euro if it was as easy to use them in the physical world as cash.

“Our notions of money and how it is created have been similar for over 600 years, since the emergence of the nation-state system,” says Stan Stalnaker, founding director of Hub Culture. “As the Internet erodes boundaries in other areas, it’s only natural that people think about money in new contexts.”

“What is changing is our ability to create systems that are both decentralized and efficient, with fewer requirements for central control, continues Stalnaker. “ These changes are early indicators of a seismic shift coming in the way we articulate, exchange and perceive monetary authority.”

For starters, money is increasingly just data. All the value in the world is today represented not by gold or paper but by bits in the form of messages, says Silicon Valley seer Doc Searls. Money itself does not move: Agreements do. When SWIFT, the interbank telecommunications provider, reports that "1000€ are no longer in Account A but are now in Account B," all involved believe that money has actually been transported, says Searls. Yet nothing physical has happened. The abstractions we call bits, and written language and formal messages have all caused a shift in the agreement about where the money is.

The point is that the networked world is one where trade can be instantaneous and without location, and can be both two-way and auditable, says Searls. SWIFT has provided infrastructure for that over the last several decades, but only for its partner banks and other large institutions. “The same grace could be extended to the exchange of everything and agreements about everything, over the Internet,” he says.

Many kinds of live signals of demand and supply can be sent, received, and acted upon via a mobile device, thanks to full-duplex application program interfaces (APIs), a set of tools for building software applicationsthat can be implemented by both a user and an organization. “All these capacities—none of which are physical—comprise new infrastructure and building materials for countless new businesses, for banks and for everybody else,” says Searls.

One of those new business lines is based on the idea that people can be compensated for services in digital currency and then spend that money not just for online goods like games, music or movies, but also to pay at participating businesses in the physical world.

Ven trading goes to a central repository and Hub Culture tracks who has what. But other digital currencies, such as Bitcoin and Ripple, are decentralized.  Two-year-old Bitcoin, a peer-to-peer electronic payment system based on cryptographic proof instead of trust,

allows any two willing parties to transact directly with each other without the need for a trusted third party.The technological approach allows people to anonymously buy anything online or transfer funds without the need forbanks, credit card companies, or services like Western Union.

There are now 8.1 million Bitcoins in circulation with a value of  $54.27 million. “Bitcoin liberates money,” says Donald Norman, a co-founder of the Bitcoin consultancy, a team which specializes in developing software for Bitcoin and running its exchanges.“Imagine a dollar bill, or a small piece of gold, simply having wings. I can send it to my friend across the  world for free, quickly and without an intermediary taking his cut.”

The service appeals to geeks, libertarians, dealers in illegal drugs and money launderers but also to a swelling group of people across the planet who are committed to the so-called “triple bottom line”, an expanded spectrum of values and criteria for measuring organizational success that includes environmental and social, as well as economic, criteria. “Alternative currencies have social, moral, nonfinancial values encoded in their DNA,” comments Innotribe’s Schlegel.

It is ironic, according to Norman, that people associate Bitcoins with money laundering, given what he deems the “criminal” actions of banks. “Did anyone go to jail for the laundering of up to $420 billion of Mexican drug cartel money through  banks?” asks Norman, “And the $160 million fine? I wish I only had to pay .07% — that is point zero seven percent!– on my legal money transfers.”

Bitcoin is not out to maximize profits. It offers a number of advantages over traditional ways of transacting. “It is free, it takes 40 minutes or less instead of days, the service is available 24/7 including bank holidays, and Bitcoin does not freeze your money or dictate which merchants accept it,” says Norman.

Of course, you can’t spend Bitcoin in as many places as you can use traditional currency, at least not yet. And as with anything new, there are risks. The value of the currency, which is now at $6.7 per unit, has fluctuated wildly, dropping from $33 per unit to under $3 at one point in 2011.  And people are already short selling it and stealing it – just like they do with currencies in the physical world.

One of the biggest challenges for Bitcoin is that its network was not built to scale. However, on the assumption that demand will soar, a team of software developers are working to make the network more resilient and the user interface more consumer friendly.

Hub Culture, which pioneered the space, also has big ambitions. When it was launched in 2007, Ven was assigned a value: Ten Ven equaled one dollar and Hub Culture began to sell it, allowing members to redeem their Ven at retail outlets willing to accept the currency.  The list of retail suppliers has grown and Ven is now priced to a basket of currencies, commodities and carbon futures.

“Banks can benefit from working with us to grow the Ven economy and bring Ven to institutional trading,” says Stalnaker. Hub Culture’s goal? To make the Ven a global reserve currency.

It is unlikely that there will be a single reserve currency or a single global currency, according to Stalnaker. Instead, a mix of physical and digital currencies will allow people to pick and choose new options for trade.

Some already are. So don’t be surprised if someday soon your waitress asks to be paid in Ven or Facebook Credits. The future is already here.

 

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