Is Digital Currency the Wave of the Future?

Technology news indicates that it may be. Proponents of digital currency in some form or another in the Wall Street Journal, for example, argue that it can save billions in financial transaction costs, streamline economic exchanges, and make financial exchanges ultimately more secure.

Others, however, argue that our paper-and-metal currency is closely tied to the governmental form of the nation state and that moving into digital currency is not going to be an easy or streamlined move, even assuming that a safe and secure digital currency can be developed.

The first digital currency, Bitcoin, generated enough controversy and uncertainty that it is not likely to become the standard. And there are acknowledged security concerns with existing digital currency. Yet many observers believe that digital currency will occur sooner or later.

In fact, even more tellingly, the concept of digital currency is already among us every time we use a debit card to purchase something. We aren’t using the representations of precious metals that bills and coins were designed to be: we are using a tool that unlocks our accounts digitally.

On the Pro Side: Like a Spreadsheet

Despite the digital quality of swiping a credit card, however, it leaves out a key characteristic of the existing digital currency model. That model, Bitcoin, nearly eliminates the currently existing middle way stations of your money.

The Wall Street Journal points out that the transaction appears simple, quick, and seamless to the user only. Behind the scenes many players are involved: your bank, the place you purchased from, a processor billing, a Visa, MasterCard or other card company, and the regional Federal Reserve Bank. Many gears click between your payment its actual receipt.

Yes, these ways stations are digital, fast, and streamlined. But digital currency works more like a spreadsheet. A digital order to pay simply moves money from your account to the account of the institution you purchased from. However it is denominated, the order is for a payment in currency equivalents, and moves without appreciable middle way stations.

On Other Hand: Currencies and the Fate of Nations

Yet widespread adoption of digital currency raises questions above and beyond the consumer moving money digitally. Existing paper and metal currencies are issued by specific nations – indeed, having a currency is one of the leading characteristics of a nation.

Nations have reasons to use currency. They devalue currencies. They peg their currencies to that of another nation. Financial markets can move on either weakening or strengthening currencies. Currency exchange is an important economic consideration.

How would all these functions be replaced if digital currency became the norm? It’s not clear. At the moment, digital currency seems inextricably bound to a global system. Yet, need it be?

In addition, of course, there are tremendous security concerns about fraud and ensuring the validity of currency. One facet of this is ensuring the security and validity of digital currency. Another, less commented-upon issue, is the security of existing currency.

Existing paper currency, for example, boasts multiple security levels in its colors, screens, and holograms. These security systems work because they are difficult to replicate in counterfeiting. The scrapping of paper and coin currency will have to prove it has a security system at least as good.

Whether the age of digital currency is upon us is open to question and the answer depends a great deal on security and governmental concerns.