Money is a funny thing. On the one hand, it plays a role in almost everything that human beings do. On the other hand, it’s hard to define exactly what it is. In ancient and medieval times, money was generally just a coin stamped by the government in order to guarantee its value. Today we still have coins as well as paper bills, but the government no longer backs up that money with gold or silver. Furthermore, the great majority of our money doesn’t exist as bills or coins. It just exists digitally in bank accounts.
As has often been pointed out, the basis of money is trust. Money exists, in other words, if people believe they can trust the government to uphold its value. People trust the United States government because it’s the most powerful on earth, and the longest-lasting. Likewise most other stable governments in developed countries. But in a country such as Argentina or Venezuela, the people can lose trust and the value of the country’s money sinks to almost nothing.
Here’s another truth: in today’s world, things can change very quickly because to technology. Case in point is the video industry. In 1995, Blockbuster Video looked like one of the most solid companies in existence. People wanted movies and video games, Blockbuster provided them for a price in the most efficient way possible. Then online video distribution arrived, and Blockbuster Video was knocked out almost overnight.
It’s possible that money as we know it could be knocked out by a technological alternative within the next couple decades. Basically, just as the internet offered a way of delivering movies, games, and TV shows that was better than what Blockbuster offered, it could offer the trustworthiness that underlies money in a way that’s better than what the government offers. There have already been attempts at digital currencies. Bitcoin drew a lot of attention a few years ago, but practical and technological barriers prevented it from taking over ordinary monetary transactions. Few businesses are interested in using Bitcoin, so for most people there’s just no point.
There is no theoretical reason why a better digital currency couldn’t surmount those obstacles and become a standard. The reason is that our current money system leads to losses for ordinary users. First of all, by holding our money in dollars, we are subject to inflation. Even when inflation is low, it’s still effectively wealth being taken out of our pockets. Second, unless we’re willing to keep all our money as cash under the mattress, we have to have a bank account, and the bank has numerous ways to take some of our money as the price for letting us store and use our own money.
With a digital currency on the other hand, there would be no need for a bank, or at least not a traditional one owned by profit-hungry human beings. A digital bank dealing only in digital currency could be “owned” purely by an artificial intelligence that cared nothing for profit, that was immune to corruption, and that was programmed to always put the interests of customers first. This would solve the trust issue. As soon as this AI had demonstrated its successful business practices in a sufficiently large number of cases, people would know that it was trustworthy and would be happy to use the AI’s digital bank, thereby avoiding inflation and user fees and overdraft penalties and all that crap.