Why Digital Currency Makes Sense For A Global Economy
With an ever-increasing global market, do physical currencies tied to national governments actually hinder trade?
The United States has the dollar, Mexico has the peso, and Great Britain has the pound. Within their individual borders, having a single currency provides a streamlined, unified system for appropriating value in an exchange. But when traveling outside national borders, currency can become confusing–what was ‘worth’ one amount in one country takes on new value in another; the physical bill or coin is literally worth nothing as it can’t be readily exchanged in the visiting country for goods, and its assigned value changes based on fluctuating exchange rates. What could buy a pack of gum in one country could buy a steak dinner in another.
With an international, globalized economy made increasingly possible by the growth of Internet-enabled commerce, do nationalized currencies even make sense as the basis for trade? Could there be a single, global, digital currency to unify the world economy? Instead of looking at the value of currency as a measure of supply and demand, could value be measured by social activity, trust, or reliability?
Several companies are exploring this very idea, proposing alternative systems of exchange that exist outside physical borders and redefine our traditional concepts of value. Instead of a valuing currency as a measure of supply and demand, these systems measure value based on a new set of metrics. Hub Culture, for example, is a company who proposes value as a measure of social interaction. Members of Hub Culture trade in Ven, a virtual currency earned by sharing knowledge with others. Stan Stalnaker, Hub Culture’s founder, thinks Ven is a more efficient way to think about value:
Hub Culture uses social connectivity to drive value exchange – which is a fancy of way of saying a trusted community can get more done together than other types of groups. The community drives exchange, and helps to create and build opportunities in a connected fashion. The Ven is merely a utility to reflect the values of the community – so a single, global, digital, green means of exchange reflects the values important to us. Value is value – its just another means of expressing it, perhaps more efficiently. I think of currency as language — a code for promises between economic actors.
In essence, Hub Culture places a high value on community; those who actively lend their expertise to others in need positively contribute to the economy. Empire Avenue, similarly, creates a value proposition through social networking interaction. In Empire Avenue, people and brands become stocks. Share price is determined by online influence–by both activity and engagement levels on sites Facebook, YouTube and Twitter. But unlike Hub Culture, Empire Avenue plays out more like an interactive stock market; people ask for retweets or page views in exchange for ‘investing’ back in you. As Founder Duleepa Wijayawardhana explained to us:
On Empire Avenue you can invest virtual currency in any individual to buy shares in that individual’s social media value. Every individual returns a dividend daily to their shareholders based on the engagement they create. As you collect and own more shares in those producing engaging content, the richer you become and the more ability you yourself have to engage your networks in a similar manner. Empire Avenue is unique in the social media landscape as it assigns a real world economic system using virtual currency to social media and online engagement.
Whether you agree with the Empire Avenue model or not, the platform is intriguing because it seeks to link a person’s relative ‘value’ directly to their level of social reach and influence, which points to a potential future where individual worth on the open market is determined by an entirely new set of standards. As Stan Stalnaker believes:
It’s already happening – social value tied to reputation rankings and networks, the value of billions of like buttons, are all obscure forms of currency in themselves. As they become more comprehensive and trade-able, they will become quantified related to other forms of value – from Ven to dollars to coconuts and cars. Once you assign numerical value to something, it can theoretically be exchanged, which makes it a form of currency, whatever it is – whether trust, or reliability or money itself.
And once communities of interest start generating their own accepted currencies and forms of self-governance, there’s no longer a need for a central authority- unlike banks and credit card companies, there are fewer (if any) intermediary fees for exchanging money between two parties. Such is the case with two other digital currencies, MintChip and BitCoin, which also eschew a traditional money-flow path in favor of peer-to-peer exchange.
MintChip is a newly ‘minted’ digital currency developed by Canada and is designed to operate like cash, only better. Royal Canadian Mint CFO, Marc Brule, explains the benefits of using MintChip over physical currency in a recent interview with Wired:
Unlike most other payment products, MintChip operates with many of the characteristics of cash in the online world. Not requiring a proprietary network or any network at all to authenticate and process the transaction, it is a direct transfer of value from consumers to business or person-to-person. The value is stored in secure integrated chips and uses a secure protocol that allows the transfer of value from one chip to another. Like cash, it operates without the need for personal identification, is instantaneous and does not have any age or credit requirements for use.
People can exchange the MintChip currency instantly over any Internet connected device, and the transaction is private and secure. However, MintChip is directly tied to the Canadian Mint, so while transactions don’t pass through a bank and no fees are collected, it doesn’t necessarily translate into a global economy. What it does allow for, though, is third party development, which the Royal Canadian Mint is promoting through its MintChip Challenge, a competition that tasks software engineers with building innovative apps for the evolved currency.
And while exciting advancements may indeed come from government support, the fringe innovation of inspired by BitCoin, has been an interesting study in the rise and almost fall (thanks to hacking and counterfeiting efforts) of a parallel currency and economy that operates digitally, instantly and anonymously without middlemen or banks. Instead the system is regulated by the people who use it.
With BitCoin, trust becomes central to the idea of value exchange- users must trust each other to appropriately manage transactions as all sales are final. Once again, the idea of digital currency hinges on the community and a transparent exchange between two parties. Because many see so much promise in this model, there are new businesses being constructed around the currency such as banks like Flexcoin and exchanges like Ruxum to further its reach.
Whether or not the markets have found their universal means of exchange, it’s clear that digital currency has the power to break down borders; currency becomes global with no physical borders, and borders in terms of fees and middle men are trampled in favor of a system of reciprocity and openness.
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