Money and the internet

...

The importance of digital money is growing in a society that is becoming cashless. Electronic implants are the next step: soon, we will pay and have our wallet in an implant in our hands. It is already the case in some companies in Sweden.

- What are the new issues to face in the development of online-markets?

- The emergence of cryptocurrencies in the commercial and financial domains

A cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. Bitcoin and Litecoins (a virtual currency based on the Bitcoin model) are the best examples of cryptocurrencies and the most known. Bitcoin is considered as the world’s best-performing currency. Some very local currencies have also been created to facilitate and to stabilize the exchanges in one very precise region. The bitcoin currency guaranties the user Anonymity, there is no Third-party Interruptions, purchases Are Not Taxed, and there are Very Low Transaction fees.

But the inflation and the speculation of bitcoin are representing an increasing risk in the financial market. The value of Bitcoins is constantly fluctuating according to demand. This constant fluctuation will cause Bitcoin accepting sites to continually change prices. It will also cause a lot of confusion if a refund for a product is being made.

As Kemp-Robertson, Co-Founder of Contagious Communications Ltd suggests, many people seem to trust brands more than governments these days. Since currency is, in a sense, an expression of the brand value of a government, why shouldn’t commercial brands also make currency? It is already the case for Amazon, and it is an advantage for the customer because the value of the currency is fluctuating and the prices are often advantageous. It represents also a challenge in the private sector.

- The limitation of risk: a challenge for the future of our economy

It could be argued that the financial crisis of 2008 came about in large part because of deregulated or under-regulated financial markets. Speculation in credit derivatives and mortgage-backed securities, along with accompanying risks that were poorly understood, created systemic risk, which badly damaged our nation’s economy and much of the rest of the world’s as well.

The case of the financial crisis of 2008, the lack of stability of the new model was built around a liberal conception: The Internet powered a lot of those interconnections. When you dramatically increase the number of interconnections, you create over connected systems that are unpredictable, volatile, accident-prone, and subject to contagion. This phenomenon is one of the explanation of the explosion of the Internet-bubble in 2008, and explains exactly the role that played speculation in this mechanism.

“Is there a reason for governments to be in charge of money?” asks Paul Kemp-Robertson. Judging by the new raft of alternative currencies—from digital coins to point systems that reward customers of a certain brand—the answer might someday be “no.” But considering the risks that the liberal markets involving on the Internet, we have a to face a problem of control and regulation, what brings us to another point: how is society organizing commercial relations with the Internet, and how is money adapting to the new social scheme?

While the increased time and workload resulting from government regulation can be detrimental to individual financial or credit services companies in the short term, regulations can also benefit the financial services industry as a whole in the long term.

Conclusion:

For several decades, the new technologies have been involving with an exponential speed. Now the problematic of innovation, monetary and social evolution goes further with the question of the legal frame, of regulation. But how is it possible to contain the risk without retraining the possibilities of expansion of the financial market?

That is the proposition of the authors of The Future of Money in the Information age, a book written before the crisis of 2008:

“We believe that a banking industry based on the model of share banking and electronic payments would be both efficient and stable and would prove conducive to improved economic performance. While technological developments might be expected to expose existing banks to strong competition in payments and intermediation, those banks are likely to continue to have both perceived and actual superior risk-assessing skills to new entrants in the intermediation business. This comparative advantage should ensure that they will continue to earn income by way of fee for their credit-rating skills, irrespective of whether all their other business activities prosper or fail in the new technological environment.”

Nowadays, we know the risks that instability and self-regulation of the markets are engaging. Of course, this very liberal vision can be discussed, and we will see in Matoy’s presentation, why, in some extents, the role of the authorities (the State or supranational authorities) is necessary.

...