Security Notes: Tomorrow’s Money

Most of the digital coins today should be slapped with a federal warning label, akin to the federally mandated warning on cigarettes: “This coin (e.g. Bitcoin) is at risk of sudden death” should its mathematical foundation crumble—which it will, but nobody knows when.

However, the next generation of digital coins will be immunized against mathematical collapse, will be well-grounded into the economy, and will offer a yet unimaginable range of tools and means for society to run itself much better than it does today.

We can already imagine a few of these benefits: pay-as-you-go-everywhere, money for sale, loanchain, automatic taxation, and mortal cash.

Subscription as a method of payment is very common and very unjust, as light users subsidize heavy users. Pay-as-you-go ushers in fairness. The new technology of digital money allows pay-as-you-go to be implemented everywhere, even on short-lived services. When an app gives you the weather outlook, it is formally free, you just face a bunch of ads. Ads go to popular apps, making it impossible for new, creative apps to compete.

If, instead, you paid a penny or even a fraction of a penny every time you watch for a storm in your area, newcomer weather apps will compete for your money by offering a better service. Most of us subscribe to a cable-TV service and buy a bunch of channels we never watch, paying for what is available even if we rarely watch anything. Pay-as-you go is a very productive alternative.

Digital money can be used to make nano payments in fractions of a second, automatically and fairly. With that in mind, here are some promising trends in payments:

• Money for sale. Instead of giving the needy food stamps, why not offer discounted digital money, which may be limited to certain used. The idea behind a discounted price of money is similar to the idea of the co-payment in the insurance industry: it keeps the buyer in the picture. Money soon would sell at a price higher than its nominal value, because the purchased coins will offer their owner anonymity or another advantage. Money for sale as a concept is a bit hard to digest, but it, too, is on its way.
• Taxation. Today, taxes are derived from an income stream, allowing creative accounting to play the system. Digital-money taxation will be randomized, so that every coin will share the same chance to be passed to the government. No 1040 filing, no accounting acrobatics. All traders will pay very close to the same rate. That’s the power of randomness.
• Mortal cash. Today, people receive money to handle a dire need, but siphon the money to other purposes. This abuse can be handled through the mechanism of tethered money. The benefit of tethered money is much more pronounced if it’s used over “mortal money,” which expires at a set date, so it must be redeemed beforehand. Otherwise, it’s lost.

Trillions of dollars lay inactive because they can’t be given an interest-bearing status fast enough for a short enough time. Digital money handles this challenge, allowing money to be interest-bearing for long or very short times.

These are but a few examples of what can happen when identity-bearing digital money is in full swing. Money is not a feature of nature. It is 100% a human invention. Some argue it is the greatest invention because it enabled the division of labor, which in turn enabled all the other inventions. Digital money, when it comes of age, will relate to 20th-century money as the latter relates to barter. Let’s enjoy the ride!

—Gideon Samid gideon@bitmint.com