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Criticism of money and digital technology

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Brett Scott is a journalist and financial hacker who writes about the intersection of money and digital technology. His work can be found in publications such as the guard, new scientist, wiredand CNN.

HERE Scott shares five key insights from his new book, Cloudmoney: cash, cards, cryptocurrencies and the battle for our wallets. Listen to the audio version – read by Scott himself – in the Next Big Idea app.

1. The US dollar consists of three different currencies with the same name

We often get the impression that digital payments are an advanced upgrade to physical cash, but this is very misleading. We live under a hybrid monetary system with at least three different forms of money interacting symbiotically. The first is physical money issued by government agencies, such as the Federal Reserve. The second are digital dollars issued by banks. The third is issued by companies, such as PayPal.

Imagine I walk into a casino and hand over $100 in government money for $100 in casino chips. The casino took my money while it gave me some form of private money – casino chips. There are two forms of money here: government money and privately issued casino chips that can be exchanged for government money.

This image of privately issued chips is very useful to understand the banking industry. When you deposit cash at a bank, they take your money and give you “digital chips” that can be used within the limits of the bank payment system. They can also spend far more digital chips than they have in public money, and a huge amount of what we call ‘money’ is actually issued in this form by commercial banks. Players, such as PayPal, can take ownership of your bank-issued chips and give you their own chips.

2. “Cashless society” is a euphemism that is driven from above

A cashless society is one in which we become completely dependent on digital chips issued by banks and companies. Calling this a “cashless society” is like calling whiskey “beerless alcohol.” It’s evasive. I was recently in a “cashless” pub in London, and in order to pay for a single small item, I had to download an app that required interaction with at least three mega-corporations. I had to use Google or Facebook for identity, two commercial banks for the digital money and Visa or Mastercard as a means of messaging those banks. “Cashlessness” is a euphemism for a distant conglomerate of data-hungry, profit-driven companies trying to get between me and those I’m trying to pay.

The transition to a cashless society is presented as being driven from below by consumer choice. The truth is that there has been a top-down war on cash for decades, driven by institutions that want to make it more likely that we will opt for digital payments. These include banks, payment companies, fintech companies, big tech and even governments. The commercial players have two goals: to make a profit and to obtain data. The political players have only one goal: to increase control.

3. Physical money is the bicycle of payments

People often talk about convenience as if it could be infinitely increased by more technology. Presumably we will have more free time as technology advances, but in reality we are busier than ever.

Convenience is a relative term. Imagine a person on the outskirts of Los Angeles contemplating how to get to his place of work 10 miles across town. In this context, walking seems inconvenient and having a car seems convenient, but ask yourself why this person lives 10 miles from their office in the first place. To be because of cars. In capitalist economies, technologies are rarely used to increase leisure time. On the contrary, they are used to to expand and accelerate the economic system. Once that happens, our environments will be recalibrated. A person on the outskirts of Los Angeles is not liberated by the auto industry that provides convenience. They are captured by the industry’s structural stranglehold over their lives.

Just as we see millions of people “choosing” themselves to buy cars in an urban environment that has been transformed by the automotive industry, so too many people will “choose” themselves to use digital payments in an economy dominated by large financial institutions and big technology . Those industries have much more to gain from digital payments than we do, and the ‘convenience’ they provide is based on our becoming dependent on their power. In this context, the digital payments industry presents cash as the horse cart of payments, an obsolete form that clogs the economic highways. In reality, cash is more like the public payment bike, enabling peer-to-peer, localized and resilient transactions.

4. Fintech isn’t revolutionizing finance, it’s just automating it

After the 2008 financial crisis, entrepreneurial technologists argued that digital technology could disrupt and democratize the financial world. Fintech companies presented themselves as revolutionaries, but they rarely wanted to make profound reforms to the financial system. They just wanted to make the same old system faster and more automated by designing apps that could be pasted over. Instead of interacting with the service personnel in a bank branch, we are encouraged to do self-service over the phone. Fintech also moved on to automate bankers’ jobs. Instead of a human reviewing your loan application, an algorithm does it.

This is why the fintech industry is anti-cash. Offline cash is difficult to integrate into automated systems, so the fintech sector presents cash as obsolete. These so-called revolutionaries have slowly but surely merged into the existing financial system. Banks have a strong drive to automate, so they started absorbing fintechs. On average, the fintech sector has reduced costs to the banking sector and thereby enabled it to spread to parts of society that were previously isolated from it. This is often referred to as financial inclusion, but people are being absorbed into data-hungry business systems with enormous power dynamics.

Simpler, slower and smaller systems can be much more resilient and inclusive than complex, fast and large scale digital systems. Rather than jumping on the fintech train uncritically, we should ask ourselves how to strike a balance between digital and analog systems.

5. Bitcoin does not challenge the monetary system.

In the 1990s, a group of activists known as cypherpunks experimented with building alternative forms of digital money as a counterweight to the banking industry. In 2008, a person or group under the pseudonym Satoshi Nakamoto took a series of cypherpunk innovations, combined them into an elegant recipe, and named the result Bitcoin. It is a system that allows large networks of strangers to issue and move tokens among themselves without banks. Bitcoiners claim that this can save us from the vortex of big tech, big finance and big governments.

I was involved in the early Bitcoin community, but soon realized that the system was an advanced means of moving raw tokens. The innovative technological architecture makes people believe that the tokens are also advanced, but in reality they are limited edition digital objects that are only branded as money. Think of them as digital medallions that mimic the appearance of money as they are bought and sold for dollars within the actual monetary system.

These digital medallions can be used for exchange through a process called countertrade. I can hand over two $500 wristwatches as payment for a $1000 computer, but by implication I’m actually selling the watches to the owner of the computer for $1000, and give them that money back to buy the computer. An alien watching that interaction might believe the watches are some kind of money, but in reality the money is the dollar system hidden in the background. Similarly, I can counter snippets of dollar-denominated Bitcoin for a dollar-priced computer, but the reason Bitcoin is effective here is because it parasites off the dollar instead of challenging it.

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