Future of Money: Alternative Currencies and Transactions

This is part 1 of a 3 part series penned by myself, Gunther, and Sasha. We’ll be sharing our thoughts on the future of digital economies over the coming few days.

The global economy is a composition of constantly changing smaller economies. Ones that morph in value in relationship to each other literally every second. The question I’d like to propose to you is, will the internet ultimately present the opportunity to standardize a global monetary system, or will it create even more disperate micro-economies spurred not just by geography but by purpose, marketplace, and socio-economic status?

Let’s explore a few notable economies the internet has brought forth in the past two years.

Dwolla: With a sea of interested investors, Dwolla is currently giving credit card companies and Paypal something to pay attention to. The basic function of Dwolla is to act as low-cost medium for sending/receiving money. They charge $.25 flat for any transaction over ten dollars, under ten dollars means there’s no charge at all. Without all the overhead that many of our current financial service companies pass on the customers, the low transaction cost of Dwolla makes their system obviously valuable to people and businesses who are constantly buying and selling. Currently, Dwolla accounts are funded by U.S. bank accounts and a U.S. Dollar is the same as a Dwolla Dollar. Theoretically though, if Dwolla enables businesses to exchange value for less cost, then couldn’t one argue that their Dollar is more valuable than the original monetary system that funded it? If not that, then certainly more valuable that a Paypal dollars. The concept of having “exchange rates” between online payment systems seems like a complex and scary place to go, but when we start multiplying the cost of doing business (fees) times billions of transactions per day, it’s safe to say that one day online currencies will eventually start to compete for which is more valuable compared to others.

Bitcoin: Perhaps far ahead of its time, Bitcoin aimed to be a digital currency valued not simply by real money backing it, but also by computing power. Users could (I’m using past-tense since the Bitcoin system has arguably failed) receive coins for allowing their computer’s processors to be used to solve complex equations in the cloud. While the concept seems simple enough, because the system wasn’t backed by any real currency, and regulation was a responsibility shared by all users and not a governing body, a few clever individuals were able to quickly take advantage of the system. With some being able to create and distribute the currency using unfair advantages, the currency essentially inflated itself out of existence. Overall, the idea of making a more neutral web-based currency is appealing, but this particular case study should remind future innovators that a global economy is chaos with some regulation, and more importantly air-tight security.

Sharing Economy: As Rachel Botsman calls it, the age of “Collaborative Consumption” is upon us. A growing behavior which moves a great deal of our transactions from money = goods or services to goods or services = goods or services and money = parts of goods and services. Online services like Zaarly, FreeCycle, and so many others are  bringing us backwards into the barter system, but forward in a way that makes that system simpler and far more efficient. Cash has always been the great unifier since prior to the internet, it was difficult to find people to buy, sell, and share things with. Cash provided us with a place to “hold” the value stored in our goods and services until we actually needed to procure them. Now that we’re able to access almost anything at anytime, we’re starting to see less reliance on cash, and more on directly trading the value stored in our possessions, time, and talents. Some might argue that these types of economies are not in fact more efficient than cash, but we have to look at a few factors that counterpoint that assumption. 1) Less (for now) taxation and government intervention might lead to a more efficient unit of value. 2) Less volatility in value since not everything is tied to the same system. 3)The environmental benefits of sharing/trading locally versus buying everything new (which is what a cash system encourages unfortunately). 4) The trickle-down economics of sharing and reusing let some wealth more easily pass from the higher economic classes to lower. This happens already of course, but simple mobile applications are making the process more accessible.

As of today, all of the above economies still function off the backbone of an actual currency. Bitcoin came to the closest to removing itself from actually being backed by a traditional monetary system, but ultimately failed mainly because a lack of security. Dwolla is looking to super streamline transactions to make buying and selling as valuable as possible. Collaborative consumption is providing us with a chance to use our “things” collectively in a less wasteful manner.

What emerging online economies do you see disrupting our existing systems the most?

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