Money is changing, with a range of innovative new technologies looking to disrupt the established financial structures.
Chief among these are the crypto-currencies such as Bitcoin.
But what are they, where did they come from, and are they really a threat to the traditional monetary system?
The origins of Bitcoin
In 2008, a paper appeared in a newsletter to members of the Cryptography Mailing list, outlining a plan for a new kind of currency called Bitcoin.
The following year, the first units of this new currency were available, following release of the Bitcoin software and the launch of its online network.
The wider world, preoccupied with the maelstrom of financial meltdown, took very little notice. Over the next few years, the community of Bitcoin users seems to have grown, while the value of the currency in circulation has now risen to $10 billion.
What’s it worth?
The online currency converter XE lists the value of 1 bitcoin at £566.12 (4 February 2014).
It is accepted by an increasing number of online businesses including Wordpress and Reddit, while bricks-and-mortar businesses, including a British pub chain and shops in a whole district of Berlin, have begun to accept the currency.
Bitcoins are obtained in the first instance by mining (running complex computer algorithms), purchasing from a Bitcoin Exchange, or exchanging for goods and services. They are then stored in a digital wallet which is only accessible by the owner.
October 2013 saw the arrival of the world’s first Bitcoin ATM, in Vancouver, where users can withdraw their bitcoin cash in local currency.
An alternative to traditional currency?
It’s perhaps no coincidence that the rise of digital currencies has coincided with a time of turmoil and growing mistrust in the established global financial system.
The way Bitcoin describes itself is as an alternative to the status quo:
Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part. (Bitcoin.org)
As the popularity of Bitcoin grows, it’s this lack of central control that is causing concern, particularly in states which routinely exercise currency controls.
What the authorities say
In December 2013, the Chinese government issued a memo restricting financial institutions from handling virtual currencies, while Thailand has become the first state to ban the use of Bitcoin.
In Europe, the financial authorities have adopted a ‘watch and wait’ position, and the Bank of England says the current level of transactions is not causing any financial instability. In the US, concerns about tax evasion have led to calls, not for outlawing, but for official licensing and regulation of the Bitcoin system.
The Financial Times recently published a comprehensive article highlighting the stances of different governments and institutions towards Bitcoin and virtual currencies.
The myriad of similar, but less well-known, crypto-currencies includes Ripple, LiteCoin, Peercoin and Mastercoin.
Mobile payment systems
Recent years have also seen the growth of less radical innovations in digital payments, mainly centred on the smartphone, as mobile usage becomes more or less ubiquitous the world over.
Barclays Pingit, for example, is a mobile application that can be best understood as a high-speed extension of traditional banking.
Square, a physical card reader that plugs into the consumer’s mobile to take payment, is accepted by a range of businesses in the US and Japan, including Starbucks. In Europe, rival iZettle offers similar functionality to merchants.
Not restricted to industrialised nations, mobile payments in the form of M-Pesa actually predate many of the systems mentioned here. Millions of transactions have been made via text in Kenya, Tanzania and other developing countries, allowing mobile operators to cash in on the fact that mobile ownership often far outstrips bank account membership.
Droplet, a UK start-up based in Birmingham, has rapidly gained traction among leisure outlets, shops and cafes as a quick and easy way to take payments without incurring transaction fees.
It is this combination of convenience for the consumer and savings for merchants that could be key to the success of mobile payment systems, and indeed of digital currencies as well.
Compare and contrast: six digital payment systems
Online conversations data based on Brandwatch analysis, January 2014