While watching payment related videos on Youtube, I came across this amazing video from Paul Kemp-Robertson. I was impressed with how he ties up trust, technology and currency. I could'nt resist but to write and share my 2 cents on what I understand from the video.
What is a currency? Currency is a form of money regulated by respective governments in the world. It is considered to be centralized and secure. The big question to ask ourselves is do we trust in our Governments. Surprisingly most of our answers are no, but we trust in corporations more than we trust the governments. According to Edelman Trust Barometer only 38% of us trust in Government officials or regulators.
The question we need to ask ourselves again is why we trust corporations? because we don't trust all corporations but only some of them. Corporations have been able to build brands over a period with great products/services and we believe in associating ourselves with brands more than the corporations. We have our choice to select or reject brands and are independent in our choices. Are we going to see a similar transformation with respect to the money that we choose to deal with? Is our belief in currency backed by technology and corporations trumping trust in traditional institutions?
In a survey by Opinium, 45% of 25 – 34 year olds in the US would be comfortable using an independently issued, or branded, currency. This changing preference has given birth to independent currencies like Bitcoin, Amazon Coins, etc and a chance for us to find out what else is out there. According to Paul-Kemp Robertson in this video, our relationship with the money is changing.
The world’s best performing currency according to the experts was found in 2008, Bitcoin. Bitcoin is a crypto currency which is decentralized and regulated by the network instead of an authority. Bitcoin was found by an anonymous programmer using the pseudonym Tsatoshi Nakamuto. So how does one actually get (mine) bitcoins. There is this geeky element to mining Bitcoins. There is a network of computers release a set of complicated mathematical problem. The person who gets to solve the mathematical problem first gets the bitcoins. Because mining Bitcoins is complex and involves solving mathematical problems, programmers love such challenges and love mining bitcoins.
Bitcoins released are put in a public ledger and are floated in the market and become currency which can be used for trading. The scary thing about Bitcoin is its decentralized, this is also the reason why its popular and cheap.
Bitcoin Trading is not stable yet; the fluctuations in the bitcoin market are wild. During a certain period the value of Bitcoins went up from $13 to $266 and crashed by 60%. The value of a Bitcoin when we last check in August, 2013 was $110.
Bitcoin is widely being accepted today and companies like Wordpress and Reddit are seeing transactions through Bitcoins. Bitcoins are gaining trust by merchants and users which is driving its acceptance and use.
One of the other examples where paper money is replaced by virtual currency is what’s happening in Africa. Shopkeepers find it difficult to give change back to their customers and instead give onions or chocolates in exchange. Vodafone came up with this idea to cash in on this problem by introducing Fakka to Africans. Instead of handing over onions or chocolates the shopkeepers handover Fakka to their customers which is used as airtime by Vodafone customers and the shopkeepers no longer have to fret about the shortage of physical cash. This acceptance by the customers again brings in the importance of trust in Vodafone as a brand and Fakka as an alternative form of physical currency.
LTP View: Technology is influencing our choices and trust is being built around technology. Currently, the Senate has begun cracking down on exchange of virtual currency. These are still early days to tell if unregulated virtual currencies will exist. If 2-3 big nations allow and adopt Bitcoin and let the free-will prevail regarding use of currency options, those days are not far when we will be be seeing bitcoins being used extensively.