The Future of Money

The scene is a restaurant in 2020. 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 a code on the bill. One person slips something that looks like a credit card out of her wallet. Her fingers tap on several dark squares on the card which light up when her personal code is activated. The card — an intelligent check — is waved over the bill and debited. Below the charges for food is a space for tips. Their waitress prefers to be compensated in Facebook Credits, although some of her co-workers ask for tips in an alternative digital currency or transferable frequent flyer miles, any of which can be automatically placed into their linked accounts with the tap of a diner’s finger or the wave of a mobile device.

Such a scenario was painted in 2011 at Sibos, an annual financial services industry gathering that attracts over 8,000 banks from around the world. In many ways that future is already here.

Mobile payments and alternative currencies such as Bitcoin, Ripple and Ven are already gaining traction, shaping the future of money and widening the way value is determined and traded around the world and even beyond.

On November 24th British entrepreneur Richard Branson, founder of Virgin Group, which owns more than 400 companies including the Virgin Atlantic airline and telecommunications provider Virgin Media, blogged about how his commercial space flight venture Virgin Galactic has already started accepting payment in a type of virtual currency known as bitcoins. A flight attendant from Hawaii has already purchased her Virgin Galactic ticket in bitcoins.

Bitcoin fans include early ticket holders for the suborbital space flights such as actor Ashton Kutcher and Silicon Valley venture capitalist Shervin Pishevar as well as other tech industry personalities including Shakil Khan, a well-known entrepreneur and angel investor who is scheduled to speak about the future of money on December 10th-12th, at LeWeb Paris, an annual Internet conference that is expected to attract 3,500 global attendees this year.

Khan, who is head of special projects at popular music-streaming service Spotify, where he is personal advisor to founder and CEO Daniel Ek, is an investor in numerous start-ups, including Spotify, DueDil, SecondMarket and Bitpay, a payment service provider that specializes in helping Web merchants accept bitcoins. Khan is also founder of several companies, including CoinDesk, a media site that specializes in news about bitcoin.

For entrepreneurs like Khan virtual currencies represent an opportunity to shape the future of the Internet and global commerce.

Virtual currencies can enable nearly instant payments and money transfers globally at almost no cost and — their proponents argue — with greater security and privacy than existing electronic payment methods.

And they are starting to become more mainstream. Over 20 million units of the Ven, a digital currency traded on Thomson Reuters terminals which is tied to a weighted basket of currencies, commodities and carbon futures, have circulated, and it can be used to purchase anything from cars to coffee.

Unlike the Ven or traditional money, bitcoins are not centrally controlled. Instead, the coins are created by a network of users who solve complex mathematical problems — a method known as “mining” — to generate bitcoins. Only a finite number of bitcoins can be created.

At U.S. Senate hearings in Washington in November, government agencies such as the U.S. Secret Service acknowledged that bitcoin, which is designed to be difficult to trace, has potential benefits, as well as risks, helping establish the currency’s credibility. In November CheapAir.Com, an online travel agency based in Los Angeles, began accepting bitcoins for purchase of flights and the University of Nicosia in the capital of Cyprus began accepting tuition payments in bitcoins.

BitPay, the company Khan backed, has so far helped over 10,000 merchants across the world start accepting payments in bitcoins. According to CoinDesk, the media site Khan founded to explain Bitcoin to the masses, 50% of the merchants that use BitPay are located in North America and 25% are in Europe. Over 90% of the merchants using the payment service provider are e-commerce businesses; BitPay also counts blogging platform WordPress among its clients.

Khan recently spoke to Informilo Editor-in-Chief Jennifer L. Schenker about the future of money.

Q: How are you personally involved with virtual currencies?

A: I am an investor in BitPay, which is a payment system that allows merchants to accept bitcoins as payments for purchases on their Web sites. I personally own bitcoins. And, I have launched CoinDesk. There is a need for information about this emerging industry and market. What was out there was only very deep technical information so I decided to launch CoinDesk while sitting at the Hong Kong airport. I have never been in publishing before and four weeks later we launched. Now, after six months we are the largest bitcoin news and information site. I am hoping CoinDesk will become the Bloomberg or Reuters of digital currency.

Q: What is the difference between BitPay and Circle, which was recently launched by Brightcove founder Jeremy Allaire with $9 million in financial backing from Accel Partners and General Catalyst?

A: Circle hasn’t actually announced what services it will offer, but Jeremy told us his company is focusing on making it as easy as possible for consumers and merchants to use bitcoin. BitPay makes it easy for thousands of businesses across the world to accept bitcoins, so it shares that common goal with Circle.

Q: Why, in your opinion, is there a need for virtual currencies?

A: I refer to bitcoin as money over IP. Why is it that in 2013 I can send you a text message, audio, video, or an icon and it will take two seconds but if you tell me that I owe you $12 for the pizza last night it is going to cost me $18 to send it to you and take four days to arrive? The current systems were built in the ’70s and ’80s. Everything else has moved on but that hasn’t. I don’t know whether bitcoin is the one. We are just at the beginning of virtual currencies — like the Internet before Google or maybe Netscape.

Q: In November Bloomberg News ran a story entitled “Bitcoin Is Still Doomed.” Among other things, the article argued that no asset that fluctuates so erratically can plausibly work as a medium of exchange. In November the value of a single bitcoin momentarily spiked to over $900 following the U.S. senate hearing, then fell to about half that. This compares with a price of around $186 earlier in the autumn. What is your response to concern over such radical fluctuation?

A: We are very early in the growth cycle of bitcoin. For bitcoin to become a mainstream success it has to increase many more times in value. Of course it will be volatile on the way up, but in five to ten years it should be more stable.

Q: Ripple Labs, which has invented its own virtual currency, has also developed a system in which any currency, including bitcoins, can be moved around or traded without hefty fees. It has just raised funding and mainstream players in financial services seem interested in getting involved. Do you see the Ripple as a major competitor to bitcoin?

A: I think Ripple will complement bitcoin and can be a great payment network if it can get enough gateways on board, but I don’t think it can compete with bitcoin as a store of value.

Q: Cameron and Tyler Winklevoss, the twins best known for their part in the history of Facebook, have publicly said they have invested millions of dollars of their money into bitcoins and in July they filed a proposal with securities regulators in the U.S. to set up an exchange-traded fund that would allow any investor to trade bitcoins as if they were stocks. And you personally are risking your own money by speculating on bitcoins. Would you urge people in the general public to start buying them too?

A: The price of a bitcoin either goes to zero or it goes to many, many zeros. Should people buy it? Yes. Should they go and put every penny in? No. They should only risk an amount they are comfortable with and can afford to lose. That said, when it comes to risk/reward potential I see no better investment.

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