The use of metal coins as currency dates back to at least the 7th century B.C. By the 11th century A.D., paper money had been introduced in Song dynasty China. Despite centuries of financial innovation, paper and coin money are still common, familiar technologies to almost everyone.
Could the future, however, belong to digital currencies? Bitcoin and other decentralised cryptocurrencies based on blockchain technology have been around for over a decade now. Facebook is planning its own blockchain digital currency called Libra (though it won’t be decentralised, and is not technically a ”cryptocurrency”). Could these technologies be the future of money?
When we spoke to the former President of the European Central Bank, Mario Draghi, we asked him his opinion on Bitcoin. He told us he would not call Bitcoin a currency for a couple of reasons. One of them was that “a Euro today is a Euro tomorrow. Its value is stable. The value of Bitcoin oscillates wildly”. Isn’t this a big problem for cryptocurrencies like Bitcoin? How can we use them as currency if their value isn’t stable?
To get a response, we spoke to Benjamin Jones, Chief Executive Officer, Chief Technology Officer and Co-Founder of Bitwala, a blockchain banking service headquartered in Berlin, which markets itself as “the world’s first crypto bank account”. What would he say?
I think that’s a very fair criticism. If I could actually go back in time and come up with a terminology for Bitcoin, I probably wouldn’t call it a cryptocurrency, because I also don’t particularly see Bitcoin’s use as a currency. Currently, the valuation is changing on an almost daily basis, which means that if you wanted to go to shops and buy a coffee, you could be paying a vastly different number of Bitcoins or MicroBitcoins from day to day. And, also, you don’t really have people spending it – so, you could make all the arguments about Bitcoin being a currency if there was a large portion of the population actually using it, but that isn’t really the use-case that we see for cryptocurrencies at the moment.
So, in the West especially, you see Bitcoin being treated more as a digital asset, as a digital gold, if you will. Bitcoin was the first digitally-scarce good ever produced; obviously, with digital goods, it’s ultimately just binary data and you could just duplicate the file a million times, and that is a problem if you want to create something of value. With information it wasn’t a problem, so when the internet came along it was fine to be able to reproduce information many times – and, in fact, that’s what the internet does, it distributes it everywhere, and that’s been really great for us. But it doesn’t really work for anything that we want to have value, because if you can duplicate something an infinite number of times, then of course the supply pushes the price down to zero.
So, I would say to Mr Draghi: if you are considering holding Bitcoin, do it not because you want to buy something with it, but because you want to invest in a speculative asset that is representative of a new system that’s evolving. I see the value of Bitcoin as being this flagship of a decentralised movement which is powered by the technological properties and advantages of using the blockchain…
What do our readers think? We had a comment come in from Jonathan, who thinks digital currencies are definitely the future: “This is the 21st century. If I want to pay my taxes in Bitcoin or gold bullion or whatever, why not? It would make the continent so much more dynamic.”
For a reaction, we spoke to German Christian democratic MEP Stefan Berger, a member of the European Parliament’s Committee on Economic and Monetary Affairs. What would he say, particularly in light of Facebook’s proposed new digital currency?
[The fear is that digital currencies like Libra] could be used to launder drug money and black market money. You can, of course, take measures against that, for example, all those who participate in Libra would have to identify themselves through a Know Your Customer process, so everyone with an account has to identify themselves. However, if it’s a global currency, then you have to ask how that process would be enforced [outside of Europe].
There are many, many questions connected to this Libra project that have not yet been solved… be it money laundering or financing of undesirable projects such as terrorism… As long as these questions have not been clarified, I think we should proceed carefully and not allow it in Europe, and continue discussions about this technology for the time-being.
Are cryptocurrencies and digital currencies the future of money? Will they facilitate black markets and terrorism, or are they the logical next step for finance? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!