In Bitcoin We Trust? The Benefits and Risks of a Cashless Society

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Is this the future of currency? Looks the same, but appearances are deceiving !

Are we on the verge of a global monetary revolution as new forms of currency are making their way into our pockets and bank accounts? Or is there still reason to be skeptical about linking digital currency to the actual physical world and creating an entirely cashless society? Within the next few months one startup is aiming to do just that by launching the very first internationally accepted Bitcoin-funded debit card.

BitInstant, a New-York based startup, plans to release the BitInstant Paycard — a pre-paid debit card based on Bitcoin currency. Bitcoin is an anonymous peer-to-peer digital currency that isn’t based on coins or precious metals, but finite cryptographic algorithms. There are no government entities and no banks or large financial institutions, just exchanges between Bitcoiners: at the moment, mostly tech geeks, cryptographers and venture capitalists. But with the new Paycard, BitInstant hopes it will become easier for anyone to use Bitcoin.

Each Paycard will have a unique Bitcoin QR code; individuals and merchants will use the accompanying BitInstant app to scan the code for the  instant digital transfer of Bitcoins to the card, which can then be converted into the cardholder’s national currency.

So what are the potential benefits of using a virtual currency like Bitcoin?

1. Bitcoins can be stored with a bank or financial institution just like existing currencies if you want, but you’re also free to explore alternatives including an entirely bank-free operation.

2. Like precious metals, there is a fixed quantity and no one has the ability or authority create new bitcoins so there should be more stability in value.

3. You can transfer wealth worldwide instantaneously (without transaction or currency exchange fees !)

4. A cashless economy might make us richer: “One 2003 study estimated that moving from a wholly paper-based network to a completely electronic one could save an economy 1 percent of its annual GDP (a $150 billion sum for the United States).”

5. Virtual cash can talk. We might become better spenders by linking our cashless accounts — with every single transaction (yes, even that unnecessary $12.50 in CVS) to a service like Mint that could notify us when we go over our monthly self-appointed allowance.

And that isn’t forgetting that:

6. We’ll have cleaner hands

7. and lighter purses

8. and we’ll never have to worry about not having cash in cash-only bars and restaurants, and so will be spared the five block walk to the nearest cashpoint (#firstworldproblems).

As good as all this sounds, there are still a few questions we should ask:

Will we become better spenders but worse tippers?

What are the financial risks?

Gavin Andresen, a lead developer in the Bitcoin community, agrees that “Bitcoins are a pretty darn good store of value; they don’t take up any space, you can back them up, you can protect them with a password, [and] you can split them up and store them in a lot of different places.” But, in what is a serious caution, Andresen suggests that “ you should only invest time or money in it that you can afford to lose.” Afterall, bitcoin still suffers from some volatility: A year ago, Bitcoins reached a high of $3o (1 BTC=$30USD), but five months later the price fell to less than $3 after incidents of hacking and a stealing malware were revealed.

Moreover, it is so far unclear whether Bitcoin is safe from hacking, security breaches and theft? In the past two years, Bitcoin exchanges have been plagued by “hacks, trading glitches and Madoff-esque pyramid schemes,” CNN reported.

How will our purchasing behaviour be used?

Beyond Bitcoin, other payment systems (like Square) are already starting to amass large volumes of data on our purchasing habits and everyday actions. This data is valuable, not just for advertising and corporate researchers, but it could also be used as a form of surveillance for monitoring certain individuals, or groups of people (like tracking how food stamps are spent). In the wrong hands, scary stuff. Setting a precedent now, like with warrantless cellphone tracking, has implications further down the line.

Who benefits from smart payment cards and mobile-based payment services? And who gets left out of a cashless society?

New San Francisco restaurant Split Bread is plastic only ! Now, this is a humorous antidote to all those annoying cash-only bars we were talking about earlier, but what if I lost all my credit cards ? I wouldn’t be able to buy food. So, while early adopters and payment companies will benefit from smart payment cards and mobile-based payment services, what about all those people who don’t have debit cards, access to credit, or even access to the internet? Will a whole section of society be left behind when the tide of this revolution crashes?

Whether it’s Google Wallet, Square or Bitcoin — our futures will inevitably include some form of digital and mobile payments. And the transition depends on answering key questions concerning financial security, how our behaviour will change, and how we’ll be tracked. With new forms of currency and financial exchange, conceptions of privacy, security and perhaps even ownership will have to adapt alongside. Institutions — how our everyday lives are structured — aren’t written in stone, they evolve in tandem with our own evolution as social beings living in an increasingly quantified society.

About Sona Makker

Sona is a first-year law student studying technology law at Santa Clara University. She’s an advocate for online privacy, digital rights, and public access to the public domain. If she’s not arguing with her siblings over whether This American Life is better than Radiolab, you’ll probably find her whipping up vegetarian dishes, or attempting to do a headstand in yoga class.
Posted in: Consumer, Culture, Society
  • Correction

    Bitcoins actually rose to $30 last year not $15 as stated in your article, nice article bitcoin could be a perfect world currency once it finds stability after a phase of speculative investment.

    • Eva Arevuo

      Thanks for the correction — we’ve updated the article.

  • Tobe

    What risks exists in regards to this being used to finance crimes–terror, drugs etc.? What are the safe guards? I like the bit (no pun intended) about people that will be left out. I wonder how long it will take sub-saharan Africa to catch up?