The future of money could look a little like bitcoin but work a lot like the money we use today.
A startup called eCurrency Mint, backed by eBay founder and philanthropist Pierre Omidyar, is pitching technology that would let central banks issue digital currency with attributes of bitcoin and physical cash. As with any fiat currency, the supply of eCurrency would be determined according to each country’s monetary policy.
For banks, eCurrency could help save money on cash-handling activities, reducing the need for some tasks performed by tellers and couriers.
The proposal dispenses with one of the defining characteristics of bitcoin (decentralization) but, at least in its default implementation, may improve on another (the ability to transact without being traced).
“People might like bitcoin because they think even if the government or central bank goes away, bitcoin doesn’t go away,” said Tilman Ehrbeck, partner at Omidyar Network, Pierre Omidyar’s investment company and an investor in eCurrency Mint. “But the bitcoin value is only there as long as enough people believe in bitcoin. If somebody creates Fitcoin or Ditcoin, and multiplies this idea of alternative digital currencies, who knows what is going to happen to its value, whereas the national currency is backed by the full faith and credit of the government.”
eCurrency Mint said its technology, as designed, doesn’t let a central authority track the ownership and usage of the digital money. This may appeal to users (not necessarily wrongdoers) who value their privacy. But it could be a tough sell for governments in the wake of the Paris and San Bernardino attacks, and the company says individual countries could implement the technology differently.
Why Another Digital Currency?
Most people would agree that there’s an inevitable shift happening from paper to electronic money.
“The demand for money to be digitized is unstoppable – the next generation is going to want to transact digitally,” said Jonathan Dharmapalan, founder and CEO of eCurrency Mint, which has been operating quietly for the past five years. He said the venture is now working directly with two central banks (he wouldn’t say which ones) to enable them to start issuing eCurrency.
What gives physical currency its usefulness is its universal acceptance.
“The dollar works whether or not somebody knows me,” Dharmapalan said. “It’s the ultimate instrument of financial inclusion or equality: $50 in your hand is exactly the same as $50 in my hand, in the hands of a millionaire or a pauper. The bearer is not the important thing, the legal instrument or entity they carry is important.” The trust in the value of the currency enables debts to be settled.
Dharmapalan’s team wanted to preserve these attributes in the digital world.
They decided the digital currency would have to be issued by a central bank, have a legal identity, and be legal tender that would work effectively on any system. “It cannot have its own private system,” he said.
A central bank is needed to prevent the digital currency from being replicated and to keep its value stable, something central banks have gotten better at, Dharmapalan said.
The company initially created eCurrency with an eye on emerging markets, where banking penetration was really low and cash use was high. But it says it has talked to the central banks of 30 countries as well as the U.S. Treasury.
How It Works
In eCurrency Mint’s scheme, a central bank might produce $1 billion. But instead of printing a billion one-dollar bills, it would issue digital objects called cryptocomplexes that it would inject into the financial system much as it does cash today.
Each cryptocomplex would start with a predetermined value (say, $50) and each could be subdivided or added to others.
The key here is that the central bank doesn’t have to track the currency because each piece keeps track of itself. Through a unique identifier, each unit is forever associated with the original block from which it came. The central bank would know immediately if the total of all the pieces added up to more or less than a billion. But it wouldn’t know where each piece is, or who owns it.
There’s no general ledger like bitcoin’s blockchain for eCurrency. Only the values of the currency are constantly added, to make sure they add up to the original block issued. To prevent double-spending at the user level, there are several logic and security checks. If a currency unit doesn’t make sense algorithmically, it will be rejected.
Just like with physical cash, ownership doesn’t matter. The only thing that matters is that the currency maintains its value.