The Transformation of Money

diginomics (noun) : (dij’i-nom’iks) [digital + economics] the technological and social development toward an all-digital economy conducted electronically in all financial dealings between buyer and seller; a cashless society where all financial transactions are conducted electronically.

Merriam-Webster Online Dictionary

Joel Kurtzman, chairman of the Kurtzman Group, in his 1993 book, The Death of Money, called the new currency “megabyte money”, saying it was (and is) “an entirely new form of money based not on metal or paper, but on technology, mathematics, and science … This new megabyte money is creating a new and different world wherever it proceeds.” This former Executive Editor of Harvard Business Review and current business book reviewer for CNN, noted that “money now is different … It is no longer a thing … it is a system. Money is a network. Few people realize that money, in the traditional sense, has met its demise. Fewer still have paused to reflect on the implications of that fact.”

The “New Money Factor” of diginomics covers an extremely large spectrum to include not only the issue of currency being digitized, but every aspect of economic lifestyles today. It addresses both “how” we shop and “where” we shop. It’s how we spend our money and the electronic environments of that experience. Are we using cash, checks, and coins, or are we totally cashless? The popular yet controversial series of commercials by Visa in which the arterial flow of cashless shopping is stymied by the user of cash depicts both the reality of our times and a trend into the future.

The January 29, 2007 edition of Information Week notes that, “A generation is growing up hacking and slashing their way through virtual worlds, and they’re going to expect a 3-D, virtual interface for the rest of their online interaction.” Later, in the April issue, IW went further to say of this new generation of shoppers, “Now they want everything at Internet speed.”

The International Business Times of London headlined in its November 24, 2011 edition that the “Next Generation to be Born into ‘Cashless’ Society”, stating that “Today’s younger generation will trade in their cash, credit cards and cheques for mobile digital wallets by 2016. Children born today will be Britain’s first cashless generation and will frequently use their smartphones in exchange for goods and services.”

The Digital Economy continues to chase the heels of the Tangible Economy (where cash has long been king throughout history), getting ever closer to parity since its inception, ever reaching for predominance. Dr. Peter Bishop, the University of Houston’s “professional futurist” professor who oversees that school’s Studies of the Future program, calls this the era of “The Intangible Society”.

In a white paper entitled The Waves of Creative Destruction: Technology Past, Present & Future, Dr. Bishop declares, “We should not call it the information society because it is more than information. It’s also communication, finance, education, entertainment. I propose instead that we call it The Intangible Society—the first industrial society to offer breakthrough productivity on purely intangible products and services.”

Don Tapscott, in his classic book, The Digital Economy [© 1996, McGraw-Hill] has an equally interesting term for the new digital era: “the Age of Sand.”

“The new economy is a digital economy,” he writes. “The new age could be aptly dubbed the age of sand. The affairs of commerce, business transactions, human communications, and the insights of science are all reduced to charges on particles of silicon or racing through glass fibers, both derived from sand.”

In an era when books, movies, music, and newsprint are transmuting from atoms to bits, money remains irritatingly analog. Physical currency is a bulky, germ-smeared, carbon-intensive, expensive medium of exchange. Let’s dump it!

– David Wolman, WIRED, 17.06; “Time to Cash-Out: Why Paper Money Hurts the Economy

“Money is now an image,” writes Kurzman in The Death of Money. “Simultaneously, it can be displayed on millions of computer screens on millions of desks around the world. But, in reality, it is located nowhere and needs no vault for safekeeping. Yet, while money has no real location, it has created an environment that is paradoxically everywhere while taking up no physical space … A community where neighbors, colleagues, and competitors are accessible only through electronics.”

This is part two of a three part series on our diginomic world by Wallace Wood. Read part one & part three.

Welcome to a Diginomic World!

Something BIG is happening in the area of world economics. It is the search for a system which will drastically alter our standard and way of living – one which will put an end to our use of cash, checks and personal credit. We are witnessing the birth process of a world without money, a cashless society!

Those are the words I wrote in 1974 in my very first book, Cashless Society: A World Without Money. I spoke of a day coming in which an “international” computer system would oversee and approve or disapprove every financial transaction, no matter how large or how small. Because it would be a “central” computer system, I called it “CenCom” and proceeded to tell how an average middle income family would live in a CenCom-controlled, cashless society. CenCom would approve every fuel purchase at the gas station, every soda purchase at the soda machine, every purchase of everything at every store. It would even play a major role in monthly bill payments.

Nearly 10 years later, CenCom became the Internet!

In 1998, the publisher of that first book asked if I would consider writing a sequel. My thought at the time was: If I do write a sequel, what would we call it? The term cashless society has fallen on hard times in recent years. No one would buy a book with the words “Cashless Society” on the cover.

As I pondered the challenge, I reflected on how far we had come since the early ‘70s … and the fact that, indeed, our global economy had become more intangible than tangible. Business every-where was now being done “at the speed of thought” (Gates, 1999). And it was all being conducted over a CenCom-type network that spoke only one language: digital! A “digitized” culture with an economy that has gone “digital” – Diginomics! A brand new word!

New word for a new world

My first venture into the world of the Internet came with the publishing of my first article on the digital economy, “Diginomics” – Reviewing the New Globalized Digital Economy on December 1, 1998. Since then, the word itself has taken off worldwide. In 2007, the Merriam-Webster Online Dictionary was the first to capture the word and use my definition. Suddenly, global conferences, workshops, seminars, books, articles, university-level classes, websites and more bearing the word Diginomics have emerged online. And, more recently, Travis Patron has awakened to this trend in diginomics to give new focus to the reigning king of diginomic “money” – Bitcoin!

New Money Perspective

The Wall Street Journal quoted a banking consultant in its November 30, 2011 edition as saying, “Many of today’s bankers don’t quite get the fact there is a new normal, a new world order that is coming to banking.” Author and IT consultant Don Tapscott supports that view in his 1996 best seller, THE DIGITAL ECONOMY: “This new global situation is turning the world economy upside down. The economy for the Age of Networked Intelligence is a digital economy.”

Bitcoin appears to be the new leader of an emerging industry of digital currencies known as “cybercurrencies.” It’s what Joel Kurtzman first coined in his 1993 book, THE DEATH OF MONEY, as “megabyte money.”

Case in point: only one in ten US dollars in circulation today is a physical note—the kind you can hold in your hand or put in your wallet. The other nine are virtual.

– McKinsey & Company special report: “The Global Grid” (June 2010)

Welcome to the World of Diginomics!

This is part one of a three part series on our diginomic world by Wallace Wood. Read part two & part three.

Bitcoin Is Superior To Gold

Bitcoin vs Gold

The bitcoin vs gold debate rages on with investment circles unable to deny exponential patterns of growth which characterize Satoshi Nakamoto’s bitcoin payment system. Gold has been used as a form of currency and trade for thousands of years and has a reliable track record for preservation of wealth. However, as the newcomer onto the scene, bitcoin may be the kind of financial and technological breakthrough to challenge gold as the monetary kingpin once-and-for-all.

Early on in its life cycle, prescient investors began questioning the legitimacy of bitcoin value and debating how such a commodity could command a market price. What differentiated bitcoin from a mere collectible and what made it similar to precious metal assets?

Among many circles, especially gold bugs and older-generation investors, bitcoin was not considered a valid investment up until very recently.

In order to properly analyse the value proposition of bitcoin vs gold, we must clarify which attributes of gold are valuable and prop them up against the promise of bitcoin. When we measure the implications of today’s economic environment, it is clear to see why bitcoin is being considered the ‘gold of the 21st century’, or as some pundits have advocated, a ‘digital gold’.

Bitcoin vs Gold

Gold has perceived value because it is scarce, quasi-indestructible, and serves an industrial purpose. Bitcoin inherits all of these attributes then enhances the characteristics of portability and divisibility. Both are exceedingly durable and cannot be counterfeit. The main advantage for bitcoin over gold as a commodity is that bitcoin is highly portable, while gold must be insured, stored, guarded, and verified that the integrity of the substance has remained intact and not mixed with other filler metals.

If you are moving precious metals across borders, you must declare it. However, no amount of border authorities or cash sniffing dogs can detect if you hold bitcoin, as ownership can be distilled down to memorizing a private key.

If you are attempting to buy something with gold, it usually needs to be exchanged for currency first. Bitcoin payments need only a smartphone to transact.

One of the main reasons to add gold to an investor’s portfolio today is as a hedge against economics disaster, that of collapse or hyperinflation. Outside the gold-bug crowd, and among the current generation, gold as a valid form of transaction is something of a stretch of the imagination. In such a disastrous event, would people be exchanging pieces of gold if internet connectivity were still available?

At the blurring rate of current technological advancement, does considering a shiny metal to be valuable seem like an increasing or decreasing trend?

Gold may have been reliable in the 20th century, but among a generation of digital natives who are connected psychologically to their mobile devices, bitcoin will increasingly be the method of choice for commerce. This is the information age, and in it, information represents the most valuable form of commodity. Bitcoin is financial information stored on a collective, distributed computing network. Gold comes nowhere near to competing with this network of trust.

In terms of commodity fungibility, having one unit exactly similar to all others is important. With bitcoin, this is guaranteed by cryptographic algorithms, yet every transaction carries the entirety of its history. With gold, this is not so simple. Metals can carry dilutions and value estimates can differ depending on the mint which issued the coin or bar. We also know that the benchmark used by investors and central bankers to determine the value of precious metals has been (and continues to be) heavily manipulated.

With bitcoin, network integrity can be cryptographically proven, representing an asset which has transcended physicality and operates within the cyber domain. It’s very possible to send millions of USD worth of bitcoin within seconds and only the sender and receiver are aware of the identities involved. Physical actors cannot exert control over the portability of this commodity, and therefore, ‘digital gold’ represents bitcoin accurately.

Gold is a store of value which relies on tradition to support its value base along with a few minor industrial purposes. When you take away this perceived tradition of value you are left with a few manufacturing uses and nothing more. Tradition has built an idea in the consumers’ mind that gold holds tremendous value.

It could be argued that the valuations behind precious metals are artificially high due to a market perception which has vastly underestimated the quantity of these metals. Despite what a merchant may tell you, we have no clear idea on the supply of gold. We have barely begun to explore the depths of the ocean let alone mine deeper than a scratch in the Earth’s crust. Who is to say how much gold and precious minerals near-Earth asteroids contain? It’s possible that gold’s perceived scarcity may prove to be illusory in 20-30 years when businesses or government are mining rocks in space.

The fact that bitcoin is instantly transferable across the globe with the ability to be divided ad infinitum, is why it holds a tremendous advantage over precious metals.

Bitcoin, and other developments in cryptocurrency, will challenge precious metals as history’s de-facto store of wealth.