The era of digital currency

What is digital currency? Can we make money from simple information? Everyone is already using digital methods when it comes to managing money, from credit cards and online banking to recurring cost debit. As no one receives their salary in cash at the end of the month, the taxes and costs of the various insurances are debited in advance. There are no more tax collectors. Digital money is not just about efficiency and simplification – the extreme could be a digital currency that can exclude anyone from all economic and social relationships that need to be paid for in some way. ‘another one.

On the other hand, digital currencies promise the possibility of a monetary system with a decentralized structure and capable of self-control through built-in programmed algorithms. In such a system, anyone could have direct access to money created by the central bank, while today much of the central bank’s money is blocked in commercial banks.

By now, everyone is witnessing how the huge amounts of aid newly created by central banks – in a way that foreigners find difficult to understand – only reach those who can invest their money with it. asset managers who have sufficient insider knowledge and the right connections. . On the other hand, digital currency could allow total transparency of the economy and the financial system and access for all to state money creation, and at the same time make private money creation by banks superfluous. This article aims to introduce digital money transactions, new technologies and much more.

The operations

According to the Digital Economy Compass published by Statista – a German company specializing in market and consumer data – these are the latest headlines. Digital payment services include Google Pay, Apple Pay, PayPal, and Alipay, while personal finance encompasses household accounting, private financial planning, asset management, retirement, or alternative loans, which consist of loans. personal or micro-loans negotiated on the Internet. Alternative finance appears like crowdfunding and Bitcoin.

The share of cash payments is dropping dramatically around the world. The least developed countries in particular are lagging behind. There is a much greater distrust of the success of the state and of big business. The situation in Germany is similar to that of the United Kingdom.

New technologies

To understand digital currency and new currencies, it is necessary to take a look at the technologies that make them possible. Let’s start with distributed ledger technology, which literally means distributed cash books. Today, every individual and every business keeps their own cash book. It is possible to open different accounts and deposits, but somewhere each will keep records for themselves in order to keep track of their financial situation, if only in their head.

Today, all financial transactions must be carried out twice and more than once: if you buy a car, for example, you will register the increase in your material wealth in your private accounts and the departure of money in return. . The house bank has an account, as does the house bank of the car dealership, the house bank of the automobile manufacturer and finally, the respective accounting departments of each of the companies involved. In the case of a distributed cash book, all of this is combined into a common database in which all data is kept together and anyone with their rights can query and view their data. It should no longer be booked twice or more than once. My outputs are at the same time the inputs of the other and vice versa. This would massively reduce the transaction costs of payment transactions and make much of today’s work in banking and billing departments redundant.

Blockchain is the most discussed technology with which distributed cash books need to be implemented. There is currently a race between the big banks and internet companies as to who can file the most patents in this area and gain an advantage. The key issue is data security. How do you ensure that everyone only has access to their data and how can you ensure that someone does not subsequently modify something in their own data or in the data of others? Is there a risk of hacker attacks or other system crashes? The procedures are now so good that blockchain is being introduced not only for digital currency, but also for patents, quality certificates, vehicle documents, medical exam measurement results in patient records, etc.

The introduction of a blockchain as a guarantee against counterfeit drugs is one example. The basic idea: The data is not managed centrally, but distributed in large numbers. If someone tries to tamper with or even delete something, it will become visible in the copy comparison and can be restored. The details of this technology are a problem in themselves.

All the experts agree that this technology will trigger another major upheaval more important than what we have already seen with the Internet and the smartphone. In addition to the technological and security issues, there is always the problem of horrific power consumption. A negative example: Bitcoin uses blockchain technology and currently consumes more energy than the total consumption of a country like Denmark. However, the new processes are already considerably more energy efficient.

Other functions

In a narrower sense, however, one can only speak of digital currency if the previously known functions of money as a means of payment are not simply reproduced, but completely new functions are created. Everyone will experience it when gasoline cars are replaced by electric cars. When you refuel your car today, you go to the gas station to pay. When recharging electric cars, the transferred kilowatt-hours are measured and debited directly. This example can be easily transferred. Today, many more books are bought than read. How about buying digital books that only get paid as they are read, page by page, minute by minute? The digital book recognizes when it is opened. Similar reservation procedures are already in place for purchasing and playing movies.

This change will be fully asserted with the conversion of production to digital processes. The costs of a machine are calculated and displayed based on its usage. This goes as far as using combines in agriculture or robots in the household. Renting a car is just a taste of what to expect. Soon we will only pay for the cars when we drive them. Such a change will be technically possible and commercially successful if the software development component of the production of devices (machines, cars) becomes increasingly important in relation to the costs of raw materials and conventional production. Once the software is developed, it can be copied and distributed as often as needed at no significant additional cost. We should therefore expect a mixed calculation, as is usual in business accounting anyway. Commercial and technical calculations are multiplying.

In industrial enterprises, the flows of goods and money no longer need to be recorded and calculated independently of each other, but are integrated. Anyone can imagine that the future of such a company will be completely different from what we are used to. (This explains the great importance of new, politically controversial standards such as 5G, the fifth generation of mobile communications, which are required for the transmission of data of this type. Those who are the first to introduce networks of this kind. type have a head start in the testing and introduction of programmable and electronic currency exchange all related material.)

Until now, digital money is mainly known in everyday life from new currencies. Few buy with these currencies, but surprised by the business press, everyone is wondering if it is worth investing their wealth in Bitcoin instead of stocks, government bonds or gold. . In the meantime, the share of new Bitcoin investments in the United States is expected to correspond to around one tenth of new gold investments.

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