07 Apr

The Trouble with dCommerce: Epilogue, and the Future of Money

In the debate over the future of money, most of the conversation seems to focus on the variety of payment methods which are – clever though they may be – simply replacements for credit cards. Which is to say: they’re faster, more convenient methods of stripping value out of more transactions, with few obviously superior benefits (besides offering marginally less onerous terms for clearing transactions.)

 “We must ensure that we protect our civil liberties by preserving some untraceable payment method.

– Jeffery Brito, in the New York Times’ debate on the shift toward digital currency.

Yet precious little of the conversation seems to focus on the elements of cash that have made it a durable and persistent facet of our economic lives for well over three millennia. While paper money has it’s drawbacks (it’s comparatively easy to steal and, when stolen, hard to retrieve or revoke; it’s impractical to use for very high-value transactions; and it can be surreptitiously imitated), cash offers three very important features:

  • It is convenient, at least within the community where it is accepted. If you’ve got a U.S. $100 bill, then pretty much anywhere in the world you can find someone who’ll take it in exchange for what you need.
  • Security (in terms of shielding from the view of third parties the nature of your transaction) is built in.
  • Familiarity is part of the appeal to cash, at least within one’s native economy.

But for many people, the need to secure a private transaction is becoming a more and more esoteric concern: if I’m willing to share my location every minute of the day with anyone I’ve friended on Facebook (or anyone who can, legitimately or not, gain access to that timeline), then why care about whether or not someone knows what I’m buying? The common refrain is, “I’ve got nothing to hide, so why should I care about privacy?”

Now, besides the fact that none of us are saints, and that we can all think of something we’ve purchased in our lives that we’d just as soon not have our 2nd grade teacher, or grandmother, know about, the simple best reason to want to keep your economic choices within your own private control is this: you don’t know all the reasons why you’d want to keep everything you buy private.

Mr. Brito hints at this, but only scratches the surface: in referencing the case of Wikileaks having most of its sources of funding choked off at the payment processor, he cites an obvious instance of political pressure being brought to bear against an unpopular target.

But consider what would happen if, in a society where all transactions were digitized and traceable in perpetuity, no transaction remained outside the reach of scrutiny by a third party:

  • Imagine a healthcare system where, even if you decide you want to spend your own money paying for a course of treatment that isn’t approved by your health plan, you were physically unable to do so (because your payment would be blocked.)
  • Suppose that evidence arose that a certain food additive – oh, say, high-fructose corn syrup – was determined to be detrimental to human health. Rather than bother with years of complicated litigation to force the manufacturer to pay damages for the harm done, why not just rescind every transaction (or the appropriate micro-portion thereof) which involved the harmful product?
  • Perhaps a consumer electronics company has manufactured a device which – purposefully or not – infringes on another company’s patents. Millions of people have already purchased this device, and yet the company which sold it has gone bankrupt. No problem – just re-charge every buyer an extra $5 to cover the damages caused by the now-defunct company.

Despite the sympathies one might have for any of the aggrieved in the above situations, even the most hard-core, central-planning, mega-Orwellian control freak would have to recognize the danger in such a system: where all cash is digitized, traceable and centrally processed, no transaction is ever final.

And this brings us to the most important attribute of cash: certainty. Once cash has changed hands, only the relationship between buyer and seller, enforced by social and legal contracts, can undo the process. Finality is essential because it forces the parties entering the transaction to decide whether or not they trust each other to deal honestly.

There is no severability here: if a transaction can’t be private (i.e., knowledge of its existence is limited only to the buyers and sellers), then there is no reason for the parties to want to trust each other.

If we’re going to have a society which relies almost entirely on the exchange of digitized representations of money, we need a system of value exchange which is intrinsically secure, private, and non-revokable.

Fortunately, all of the pieces of such a system now exist: it’s just a matter of pulling them together.