Cloud money: flip a Bitcoin

by Robin Harris on Saturday, 11 May, 2013

Digital coinage can’t do everything a physical coin can do, but that’s not stopping people from signing up – or going to conferences. There’s one in Silicon Valley next week and the elite StorageMojo analyst crew will be there in force.

Digital currency as a store of value?
Today Bitcoin and other digital currencies look more like stocks than bonds because of their volatility. But with Amazon and eBay looking at accepting them, they could become more like money. If that seems unlikely, recall that much of what you use now as “money” is simply electronic transfers: credit cards; debit cards; PayPal.

These non-national currencies have much in common with how the US currency system used to work. Each local bank issued its own currency supported – in theory – by the deposits of customers.

To redeem the currency you’d go to the bank and exchange the notes for coin. Since 19th century travel was often difficult, the bank notes would depreciate with distance from the issuing bank.

With the frequent business crashes of those years, people were alert to the possibility that the issuing bank could fail, leaving the notes worthless. Thus if business tanked people would “run” to the bank to exchange their notes for specie. Since banks borrow short term and loan long term, they would often run out of coinage and close.

That’s why the US has a national currency, a Federal Reserve Bank and insures bank deposits (FDIC). But digital currencies have none of these protections.

The StorageMojo take
A recurring strand of American thought is that we should go back on the gold standard rather than letting the dollar to “float” against other currencies. After all, advocates contend, without gold the dollar isn’t backed by anything at all.

And yet the dollar remains the worldwide currency of choice, not only for B2B but as a store of value and convertibility as hard cash. Most US currency circulates outside the US – us locals would rather use credit cards.

Since the US dollar isn’t backed by gold, and since the Fed can loan as much money as it wants to banks that can use it as reserves against loans – if only they were making loans! – why exactly do we ascribe value to the dollar? Global acceptance and ready convertibility are two major reasons.

Which is where the value proposition for digital currencies makes the most sense. So can a digital currency replace – or at least supplement – national currencies? Yes.

It isn’t that different from what we used not so long ago – or what we use today. Digital currency is the new frontier in more ways than one.

Courteous comments welcome, of course. Any StorageMojo readers going? Look me up!

{ 1 comment… read it below or add one }

Ernst Lopes Cardozo May 12, 2013 at 9:24 am

Not only are dollar notes used more off-shore then at home, they are also an essential mechanism for crime (drug trafficking, etc.) and terrorism. If untraceable digital coins reach a similar universal status as dollar notes have today, they will greatly lower the cost and risk of doing illegal business. See http://www.ted.com/talks/loretta_napoleoni_the_intricate_economics_of_terrorism.html for an explanation from an italian economist who links the value of dollar notes in circulation to the illegal business (and makes many other worthwhile observations).

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