Wednesday 29 October 2014

The strange re-emergence of virtual currencies

I used to consider myself an expert on the future of money.  I realise I am not any more.  Experts on the future of money have to include more IT geek about them than I will ever have, and this realisation follows finding this: a table of some of the market capitalisations of the most valuable 'virtual currencies'.

The roller-coaster success of bitcoin has launched a flurry of activity, unfortunately somewhat similar activity - from darkcoin and feathercoin to litecoin and auroracoin.  Many of them - and there are anything up to 500 of them - are created by rather shadowy figures, often with codenames, using the bitcoin 'blockchain' technology that allows the currencies to bypass the control of banks.

The best introduction I've seen is by my colleague Leander Bindewald, who explains that we are seeing the beginning of a new kind of currency platform about as different from the conventional banking way as it is possible to be - using transparency where the banks use secrecy.

We will see, but this is certainly an awkward step towards the multi-currency world I've been predicting for some time.  But it isn't yet the diverse multi-currency world that I've been expecting.

But what I really find extraordinary about this is the way the financial world has been taken by surprise by it, because we have had parallel currencies of one kind of another since 1933.

I was staggered to see on Wikipedia that the term 'virtual currencies' "appears to have been coined in 2009".

This makes me feel more ancient than really I deserve.  In 1999, a good ten years before that, I was commissioned by Financial Times Business Reports to write an expert study called Virtual Currencies.

I wrote it and it retailed at the shocking price of £495.  It didn't sell terribly well, but then - as the boom collapsed around then - many of the virtual currencies I was talking about, flooz or beenz for example, were no more.

I put the concluding chapter online here not long ago, since it is now interesting primarily as a museum piece.  It is pretty clear that I didn't envisage the explosion of bitcoin-style lookalikes - perhaps because of the demise of digicash not long before - and it included this paragraph:

"Do financial service companies have a unique role in the development of virtual currencies? Probably not, but they are in a good position to capitalise on them, because of the inherent trust which the industry can provide to new kinds of money..."

I'm not proud of this.  I was right but for completely the wrong reason.  In fact, the idea that financial service companies might lend trust to currencies is now completely laughable.  Bitcoin and the other coins are testament to the opposite trend.

In fact, the financial services are so untrustworthy that people have been flocking to invest in a money system so anonymous that its creators are still unknown.

And if you read it, cut me a bit of slack.  I wrote it 15 years ago.

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