Digital Currency

Gold Coins & Bars 

More countries are in the process of switching to a cashless society based on cryptographic digital currencies. Lets take a deep look at money to understand why! 

Credit & Debit cards started the trend of digital money a long ago. Paper money is almost 300 years old, while coins made of metal have a history that goes to the 7th century BCE. Paper money notes have changed a lot over the years, but digital money is the most unusual abstraction of money ever devised. Its not just bitcoin that is strange, even debit and credit cards are unusual when you stop to really think about it!

Abstractions of Money

A cashless life makes money more of an abstraction, detaching people from a tangible form of money to abstract digital forms like direct deposit, checks, debit & credit card transactions. More recently Bitcoins have surged to almost $800USD, increasing interest in digital currencies. We have been slowly making the transition to a cashless society all along, perhaps unknowingly since the digital exchange systems of debit and credit have existed alongside a cash exchange system of coins and paper bills.

Money Made of Energy

Speaking of an abstraction, I long ago starting thinking about what creates wealth, money, value, profit. I wanted to understand how these things result in currencies with different values in different countries that seem to constantly exist in a flux of change.

After a lengthy amount of online research I came to realize that money exists as an abstract derivative of net energy return on investment or NEROI. Money is nothing more than a abstract distillation of energy and power, a power that gives wealthy people power to do things, to affect the the world, to move units, pay employees, to hire human intellectual physical labor. Money is the capital to buy machinery, land, to pay taxes, to buy food, fuel, housing, transportation, etc : to do things that require energy. The universe is made of matter and energy.

Money is not made of matter, aside from the physical form of tangible currency, money is an abstraction of energy with value dependent on a nations state economic functioning, political power at the global level, and the ability of that country to insure the value of the currency. In many ways money is traded like a commodity, so the psychology of the human mind share landscape, the shared collective ideologies of mankind today, give different currencies different relative values. Take a look at the price history of a Bitcoin or the Stock of Tesla Motors for an example of people investing based on ideology and faith. Tesla example was able to generate more than 350,000 preorder deposits on the Model 3, a vehicle that will not even start shipping for until 2018!

The US dollar for example derives its note value from the potential value of every US Citizens liftime earning and spending average, a figure that produces about $1 million per citizen in our capital US dollar exchange system according to ongoing valuation research done by the Federal Research, that curious creature of Jekyll Island (The commercial bank of the USA). The reality becomes much more confusing when your consider the NEROI basic core that gives money real energy value to do something in the world. The complexity of global capital exchange is so layered and complex that few people hold a detailed understanding of it all. So I ask you this; What is money in your perspective?

The Lever of Riches

NEROI literally means that the value of money is linked to our technological capacity to extract energy from minerals, sunlight, wind, atoms, xero point fields, biomass or other potential energy sources like electromagnetic fields, solar winds, etc. In other words we can produce more money in the world or increase the value of our money if we can figure out how to make more energy with less work. Said in another way if we increase our efficiency in a given field, then a given unit of money will produce more work. This can be seen in computer science more than anywhere else. $700 in 2010 did not buy you the kind of smartphone kit that you get when you spend the same $700 now. Furthermore $700 today is not even worth as much as $700 in 2010. If you get a smartphone for $700 today you are actually paying less for it then if you spend the same amount on a smartphone just last year. The money is constantly loosing value because of inflation. Inflation complicates the analysis of money even more! Just plan on the money loosing about %4 of its value every year and you get the main idea!

Anonymity

Cash allows for anonymity in transactions that prevents corporations and government from tracking exchanges, which has advantages for many circumstances that will probably switch to metal in the future. Many people already use metals like silver coins and gold bars and coins as defensive asset investment positions, for backup money, and for hidden unofficial transactions they want to keep from being tracked.

Privacy Advocates Promote Cash

Prostitution, narcotics and other illegal products and services are sectors that cannot work correctly without cash. No one is going to pay a cocaine dealer with their credit card. Think about it. Electronic payment methods like Visa cards give banks a first person view into what you spend your money on. There are things that people buy that they do not want the government or corporations to track. It says it in the Bible, the most popular and best selling book of all time, that people have been selling their bodies since antiquity, and nothing has changed other than how many, who and where in this respect.

Privacy Advocates Promote Cash

Metal Mass Money

Today gold bars and silver coins come in 1 gram, 5 gram and other mass division units like ounces. Gold is an interesting commodity because it can be exchanged as an intermediate monetary medium that is relatively portable. 1000g bar of gold is relatively small but carries a lot of intrinsic value. I recently watched a youtube video on the "Crushit" channel of a 1000g gold bar being repeatedly crushed! Worth about $40,000, it was the most valuable thing ever crush on the show.

Towards Cashless or Not 

Will all countries eventually switch away from a cashless society? That of course depends on what you mean by cashless. I can see governments doing a cost analysis on what it takes to print money, make coins and combat the counterfeiting thereof, and eventually concluding that they can save money by getting rid of physical currency. Having digital currencies means that all transactions can be tracked and taxed, increasing transparency about all transaction, something that frightens privacy advocates. No country is going to be getting rid of gold or silver however. I believe metal mass money will always be available in some form or another, namely precisely weighted units and divisions that can be used just like cash & coins today.

Value of Cashless

At Harvard, Ken Rogoff argues that negative interest rates often cause people to withdraw money from banks, something that is triggering Denmark, Sweden and Norway to consider going cashless, while large denomination bills are targeted by the European Central Bank. Today cash accounts for more than 85% of transactions happening around the world, including bribery at all levels of society in countries like India, where digital currency may replace cash in the near future! I am not sure how India's pervasive bribery system would work with a cashless society, aside from envisioning a massive proliferation of metal mass unit exchange mediums like silver coins and tiny gold bars taking the place of cash and coin bribes that are so common there today.

Cash Costs

The U.S. spends nearly $200 billion per year to have a cash system! About 1/3 of retail transactions are still done with cash even though digital debit & credit cards have long allowed people to pay with plastic!

Consider just the costs of maintaining ATM machines around the world, something that banks are footing the bill for currently. In the older days they had physical people in the bank doing transaction directly with other real human customers, amazingly this continues today. Digital has the advantage of being open 24/7, you can access the ATM machine day or night, not just when the bank is open for first person customer service. I find it surprising that first person customer service is still available at banks, especially given the stingy nature of wall streets singular focus on maximizing next quarters earnings. It seems things are not as cold and calculating as I had previously imagined!

Think about what it costs to print all the money and strike all the coins into existence. Cash wears out after only a few years. Different countries experience different costs for their cash activities. Mass production of physical money brings cash cost savings, the era of billions is in full swing these days. especially at the U.S. Bureau of Engraving and Printing! I was watching a "Mega Factories" movie on YouTube about the minting of money which got me thinking about the physicality of money, the cost of monetary systems, and formed one of the ideological threads that contributed to the creation of this posting. Looking at the cost of money further, we find a high carbon footprint for physical currencies!


Carbon Intensive

What about the cost to move armored truck, the trucks themselves, the drivers, the bags, the locks and metal, its all a huge elaborate system of diesel engine machines moving heavy bags of coins and cash! The creation, movement and use of physical money all an energy intensive carbon heavy process. Consider just the mining emissions to produce the metal in coins, their diesel truck emissions in all the stages of metal transport related to coins, its crazy when you think about it all.

People were critical of the Toyota Prius because of the Nickle mining used to produce the metal in the hybrid batteries, but who was casting a dirty eco blame on coinage that has been around all along. I get the feeling that hate for the Prius actually came from a sector that is disinterested in the public having access to 40+ MPG vehicles.

The metal nickle is used to plate rust prone steel alloys in all sorts of applications ranging from door handles and cabinet pulls around the house, to aerospace robot parts used to assemble composite aircraft components. Nickel is a remarkably strong, stiff, corrosion resistant metal that gives hot gas turbine blades remarkable creep resistance, the ability to resit stretching while spinning at outrageous speeds while simultaneously being heated to more than 3000 deg F by the burning combustion happening in a jet engine for example!

What about the toxic cotton farming used to make the cloth of the notes with more diesel machines. The entire cash system, just like printed books, create tons of carbon emissions all throughout the supply chain from the mining and production of the materials used to make the money to all the fuel used to ship it around. Carbon emissions, mining fallout, toxic agriculture and more. There is a heavy environmental toll to have a physical cash system. Despite all of this I still love coins. I have this strange fascination with metals that I cannot explain, especially cool metals like titanium, copper, lithium aluminum alloys, I even think stainless steel alloys are cool, and especially like nickel even though I have a mild skin allergy to it!

Power & Internet Outages = Bad Digital Money

I worked retail in the past and I can tell you that cash made counting out the registers take time, digital transactions were lightning fast, that is until a storm system knocked out the power or some other issue knocked out the internet connection, then cash was the easy transaction to process.

Digital currency is a double edged sword if a solar flare of significant magnitude blows out digital computing system over a large portion of the world. Similarly storm systems, earthquakes, tsunamis and other natural hazards and disasters are able to knock out power systems, internet, telecom of other kinds, banking, refrigeration, lighting, electric vehicle charging, etc. A digital electric society is only better if it has reliable electrical power 24/7.

We need reliable power grids if we are going to move to a cashless society, something India has almost no hope of doing in the near future. The electrical grids in India are joke compared to the ones in the USA for example. How would they honestly make use of a digital currency system in a country with unreliable power systems? I am not sure what kind of herbs the Indian government officials are smoking, but they need to first build reliable power infrastructure, then they can start thinking about implementing a cashless monetary system.