The Internet came into our homes through the phone line, then later cable and more recently fiber. Over 35 years, our digital home connection has grown from 300 bits/sec to one billion. Along the way, we’ve moved from time-share services, which were painful to watch as texted scroll down the screen, to 4K streaming video. Now we download tens of billions of bytes of data in a few minutes with no regard for bandwidth, unless it appears “slow.” The Internet has changed our lives, and guess what? Starting next year, digital currencies will do it again, think Bitcoin, but not Bitcoin itself rather other competing technologies.
Like the Internet, we’ve been eased into digital currencies one step at a time. First with credit cards, then debit cards, and later we added PayPal to handle our eBay sales and purchases. Have you ever left the proceeds from an eBay sale on account with PayPal before eventually spending or moving it into your bank? If you did, then you were using PayPal as a digital wallet, a store of value. Soon after, came Apple Pay, Google Pay and Venmo all more formalized digital wallets specifically designed to store value. The unit of measure within all these systems, at least in the US, is the dollar and they are all digital currency systems. If we look outside the US to China for some examples, we find WeChat and Alipay which are two wildly popular payment platforms.
Alipay is like Apple Pay, but in 2018 it processed nearly 200 billion transactions, by contrast Visa only processed 182 billion transactions worldwide. In June Apple Pay was averaging a measly one billion transactions a month. WeChat is a payment system built on top of a text messaging platform. It also includes a digital wallet element enabling near-frictionless payments between people or businesses, and it processed an amazing 460 billion transactions in 2018. The twist to all of this is that both WeChat and Alipay use the fiat currency of China the Yuan, and both applications are required by Chinese cyber laws to retain all data for six months and to provide backdoors that enable the government to collect whatever data it wants. China doesn’t officially allow access to Facebook and has taken a very hard line on digital currencies like Bitcoin. As you can see we’ve all been properly prepared and programmed to begin accepting other forms of payment. Is it too much of a jump to think you may soon pay an online vendor in something other than dollars?
The catalyst for this epic shift towards digital currencies comes in the form of Facebook which is poised to deliver Libra, their new “stable digital currency”, sometime in 2020. A stable digital currency is one that is pinned to one or more fiat currencies. In Libra’s case, they are accepting deposits in US Dollars, Euros, the British Pound, and the Japanese Yen. This is designed to ensure that the value of Libra doesn’t swing widely around like we’ve seen with Bitcoin over the past several years. Even with these fiat currency tie-downs governments around the globe are fighting Facebook and its release of Libra knowing the danger it represents.
The principal tool a country leverages to control its citizens is its currency. Countries can track currency through the banking and taxing infrastructure already in place. We’ve all watched police dramas where the investigator pulls up the financial records of the suspect, they literally follow the money. Decentralized anonymous digital currency systems provide NO capability to track or control the users of that currency. This is why Facebook will be standing toe to toe with the US Federal government in a series of hearings starting the 23rd of October. Libra has other companies and countries around the globe scrambling to secure a toe-hold in the digital currency market before Facebook dominates everything. In a prior post, we talked about Facebook and Libra, so you can visit that if you’d like to learn a bit more. JP Morgan Chase, Wells Fargo, Fidelity, Amex, and Amazon are all rolling out or supporting digital currency or payment systems. While countries such as China and the US along with the EU are also moving fast to issue alternative digital currencies and bring online payment systems out to secure their position before Libra has a chance to become the fiat (default) currency of the new economy.
Five large companies that are setting the pace for digital currencies are JPMorgan Chase (JPMC), Wells Fargo, Fidelity, American Express (Amex) and Amazon. In June JPMC announced it was beginning trials of its “JPM Coin”. This new coin is a private version of Ethereum running on the Quorum blockchain but developed by JPMC. JPM Coin is designed to be a “stable cash” coin with JPMC depositing cash to secure these tokens. Real-world trials will begin in a few months. Initially, it will be used internally to process transactions and to settle bond and commodity trades. “Wells Fargo Digital Cash” like JPM Coin, is their stable cash token and it will also be used internally to settle transactions throughout the Wells Fargo global network. Wells Fargo has announced that later this year it will be enabling JPMC to also gain access to this network. The real value for both Wells and JPMC is the underlying blockchain secure ledger technology. Amex is also running down the blockchain path as they are a significant player in the Hyperledger project. One of Amex’s largest expenses is its rewards program, so they’re moving to Hyperledger as a means for tracking rewards and for dynamically executing rewards promotions. While JPMC and Wells are pushing coins and blockchains, Fidelity has gotten even more creative. Fidelity is pushing out Kn0x which is insurance for digital currency a customer or institution has stored with Fidelity. This is insurance against theft or loss of the currency, not against any decline in the value of the currencies. One of the biggest concerns around digital currencies is the theft or loss of the tokens themselves. By contrast, Amazon has gone old school in September by teaming up with none other than Western Union to roll out “Amazon PayCode” in the US, it was available Internationally prior to September. This enables Amazon users, who only have hard cash, a way to pay for Amazon products. It should be noted that in 2017 Amazon has offered customers “Amazon Cash” which is an Amazon digital wallet that stores a cash balance. This wallet can then be used to pay for Amazon purchases. Amazon has also been buying up digital cash related domain names in an effort to hedge it’s bet if it were to roll out a coin of its own, along the lines of Overstock’s Ravencoin. Countries are also jumping on the digital currency bandwagon to head off Libra.
While the United States is NOT rolling out a digital dollar anytime soon it is delivering a “real-time payment service” called Fednow designed to settle bank to bank transactions in near real-time. This is in some ways like what Wells and JPMC are doing. It will eventually replace the overnight ACH system currently run by the Federal Reserve. The EU has the Bank of International Settlements or BIS. Which is somewhat shrouded in secrecy and is doing something, but exactly what is still TBD but something akin to a Eurocoin is rumored to be in the works. Meanwhile, China is poised to release it’s Digital Currency Electronic Payment (DCEP) system that is really nothing more than a digital Yuan. It is expected that Alipay and WeChat will jump right on board and may already have completed their integration efforts. The real question is what is China waiting for?
Digital currencies and electronic payment systems are rapidly becoming pervasive. Today there are nine digital wallets on my phone; Apple, Venmo, and PayPal, exclusively use dollars, at least while I’m in the US. The other six wallets support currencies like Bitcoin, Ravencoin, Ethereum, and a few others. With a bit of effort, I can move value between dollars and these other currencies forever obfuscating the source of these funds. Several of these wallets are gaining value on their own through mining digital currencies so the source for these funds was secure from their inception, but that’s a blog for another day. The point is that digital currencies are here to stay, and they’ll become as pervasive as the Internet over the coming decade.
Today there are nine digital wallets on my phone; Apple, Venmo, and PayPal, exclusively use dollars, at least while I’m in the US. The other six wallets support currencies like Bitcoin, Ravencoin, Ethereum, and a few others. With a bit of effort, I can move value between dollars and these other currencies forever obfuscating the source of these funds. Several of these wallets are gaining value on their own through mining digital currencies so the source for these funds was secure from their inception, but that’s a blog for another day. The point is that digital currencies are here to stay, and they’ll become as pervasive as the Internet over the coming decade.