The new money
The fact that digital currencies don’t use metal, ink, paper, and don’t need to be transported and physically secured is just the tip of the iceberg of the advantages they bring over fiat currencies. Digital currencies bring money into a new era. They have three essential basic properties.
1. Digital currencies are programmable
As entities of a computer system, digital currencies are programmable per se, and this opens up a universe of possibilities of which the decentralized world already gives a brief glimpse.
A digital currency can be programmed to:
⦁ be fungible, i.e. as with Bitcoin, tokens are strictly equivalent to each other, so that transactions can be carried out with them;
⦁ not be fungible, i.e. a token represents a specific location on the blockchain that itself contains something specific, for example the source code of an image or video, a title deed, an artwork, a certificate, a patent, etc., that belongs to a person or entity via their wallet; this is the principle of NFTs;
⦁ grant rights to its owner, for example rents as part of tokenization, interest or dividends at certain times;
⦁ be used specifically in a particular system and serve as a “voucher” that enables the use of the services of that system: this is the concept of so-called utility tokens. ETH, the currency of the Ethereum system, is a utility token as it allows use of the Ethereum Virtual Machine, which is at the heart of the Ethereum project. BAT is another example as it is used by advertisers in the Brave browser to spread their messages and reward users for their attention.
Tokens can therefore be grouped into four categories:
⦁ Payment tokens: tokens used for payments, which are fungible
⦁ NFT: non-fungible tokens
⦁ Security tokens: tokens representing an asset (real estate, stocks, etc.) and conferring a legally guaranteed right on its holder
⦁ Utility tokens: “voucher” tokens that can be used in a specific system for a specific purpose.
This distinction between tokens is made possible by the fact that a digital currency can be programmed. Here are some examples among thousands of possible applications:
⦁ A digital euro issued by a commercial bank or specialized company can be programmed to automatically issue interest to its holders at a specified rate and frequency, thus incentivizing the use of the digital euro issued by them instead of the euro issued by the ECB.
⦁ A digital euro can be designed to include refund clauses, e.g. if you have used it to buy a flight and it is cancelled, or if you have paid to go to the top of the Eiffel Tower but it is inaccessible due to wind (in these examples oracles become essential to provide the correct information to the payment system to share).
⦁ The Ministry of Education can program a back-to-school grant so that it can only be used to purchase what it is intended for and not flat screens or plane tickets to Tenerife; the same applies to other types of social benefits.
2. Digital currencies enable fast and cheap micro payments
It may not sound like much, but micro payments, i.e. payments of very small amounts, often less than one cent, are absolutely essential for the digital economy and give rise to new business models. First of all, it has to be made clear that a cent represents a large amount in the Internet of Things, in which machine-to-machine (M2M) payments take place all the time. There are good reasons why the smallest unit of bitcoin is 10–8 BTC or a satoshi and the one for ETH is wei or 10–18 ETH. Here are the three most important benefits of micro payments.
Accuracy
Very small amounts can be transferred very cost effectively, precisely and rapidly, and don’t need to be rounded up or accumulated over time to add up to “normal” amounts which are manageable by current payment systems, such as SEPA in the eurozone. For a currency to act as a good unit of account and medium of exchange, it must be divisible enough for the number of transactions in which it is involved. Here I quote The Bitcoin Standard from Saifedean Ammous: “What matters in money is its purchasing power, not its quantity, and as such, any quantity of money is enough to fulfil the monetary functions, as long as it is divisible and groupable enough to satisfy holder’s transaction and storage needs. Any quantity of economic transactions could be supported by a money supply of any size as long as the units are divisible enough.” The impossibility of going below one euro or dollar cent and the slowness of payments via SEPA or SWIFT are significant obstacles to the advent of the Internet of Things.
Real time as default setting
Being able to collect micro payments every ten seconds, every second or even continuously in streaming is a prerequisite for the emergence of the real-time economy, where something happens and immediately leads to payments, even of very small amounts. This is not profitable and hardly possible with our current payment systems; that’s why we still use invoices, prepaid plans, subscriptions, credit checks etc. and that’s why payments are often made long before or long after a service is provided. If I’m offering a service and it can be paid for in real time, then I don’t have to check if the consumer can pay because they’re doing it every second, I don’t even need to know who it is, I don’t need to issue any bills or to manage subscriptions etc. This significantly expands the base of potential users of my service and saves administration costs significantly.
The possibility for a whole range of new economic models to emerge
From the moment a smartphone, web browser, vehicle, etc. is equipped with a wallet that enables them to identify themselves and make micro payments, a whole range of “micro services” and processes can emerge that were previously unthinkable. For example, someone interested in a daily newspaper will be able to pay a few cents to read an article online, traffic lights and street lamps will transmit information about traffic, the weather, etc. to a vehicle for small amounts, your wind turbine on your roof will get pennies every ten seconds from the power grid depending on the power it feeds into it, etc. A multitude of micro payments are sent instantly to the right recipients, with no bill at the end of the month, no adjustment next year, just continuously over designated digital currencies.
3. Digital currencies can be assigned a purpose
Money as an information vector
Finally, digital currencies can be dedicated to a specific use. A simple example to illustrate this functionality would be naming currencies after recipients, like in this simple example where:
⦁ a consumer pays €10 with digital euros,
⦁ IEVAT is received by the Irish tax office,
⦁ EDK80689 remains at the point of sale,
⦁ UNILIE is transferred to the supplier Unilever Ireland,
⦁ GLOBEXIE is transferred to the carrier.
As can be seen in the graph below, it is a smart contract that converts the consumer’s 10 euros into as many dedicated currencies as there are parties sharing the turnover and according to the agreements and laws in force on the point of sale. The consumer is not aware of this; from his point of view, he only spent 10 euros and got his products.
Representation of the author
If it can be dedicated to a purpose, then money becomes a vector of information, further emphasizing the fundamental role of the wallet. As a result, the cash flows from my wallet will say a lot about me as a consumer: if I constantly use an HLTNIE coin, it may be that I am a customer of a well-known hotel chain in Ireland. If I receive the DEALGI currency every 28th of the month, then it means that I am registered as unemployed in Germany, etc. A company could offer me a certain amount to look at the cash flows in my wallet over the last x days. But if this company is running my wallet, it will be even easier to get this information: we come back to Meta, Diem and Novi here. Some currencies may be linked to points of sale, others to brands, others to municipalities, social services, employers, cities, machines, etc. Corporate and administrative accounting will also significantly improve in terms of precision and efficiency: tax authorities will immediately collect their IEVAT, the point of sale only has to look at the cash flows to know the distribution of their sales and payment delays are a thing of the past.
Impermanent currencies
In order for such a system to be possible, impermanent currencies must be used. An impermanent currency is a stablecoin whose units are destroyed or converted into something other than money after having been spent, and thus essentially serves as an information vector in payment processes.
Using the previous example again, this would result in the following process:
⦁ The consumer pays 10 digital euros.
⦁ The smart contract stores these 10 euros as a collateral.
⦁ The four currencies described above are created by the smart contract in very specific ratios that have been negotiated or mandated and incorporated into its code.
⦁ The smart contract transfers the corresponding amounts to the recipients of the transaction.
⦁ They use these currencies for their accounting and shred them to get their collateral back at some point, for example at the end of the day. For example, the point of sale has received 2.74 EDK80689 and converts it to 2.74 euros at the end of the day after recording the movement of EDK80689 in its accounts.
This system highlights the role of information vectors that currencies will play in the digital economy, making it furthermore a gigantic data factory.
