Technology of Tomorrow: Is Physical Currency Going Extinct?
Today’s infrastructure cannot accommodate on a global level for the technology of tomorrow, says our expert Brandon Kostinuk of Vanbex.
Today’s infrastructure cannot accommodate on a global level for the technology of tomorrow, says our expert Brandon Kostinuk of Vanbex. However, progressive policies supported by global economic players can rapidly change that.
Lisa Cheng, Vanbex Group CEO, who has years of experience dealing with Bitcoin and blockchain technology, says:
“To begin usurping traditional models of banking and finance we have to move society beyond our current understanding of currency and see that it exists today as digital value. Paper currency is on its way out and will be replaced entirely by digital forms.”
According Brandon Kostinuk, we are already in a globalized economy with digital assets floating everywhere. Even traditional banks, as it’s well known, store money electronically as financial information in databases.
From fintech to the Internet-based economy
Countries like Barbados, Peru and Ecuador have already leaped passed conjecture, concurrently offering a digital variation alongside their physical currency. Citizens there use digital currency for everyday items like groceries and fuel for their car, facilitated by smartphone technology.
Governments worldwide from the U.K. to China, Australia to Canada, are all looking at ways to develop, adopt and adapt to disruptive financial technology (fintech) to progressively move with the shifting sands pressed on society by the Internet-based economy.
At its most reductive core, intangible assets need a physical carrier and that’s where the discussion of hardware wallets — devices that store a part of a user's wallet for digital currency securely in mostly-offline hardware — enters the fray.
Ben Broadbent, Deputy Governor for Monetary Policy at the Bank of England, says:
“Currently, deposits are backed mainly by illiquid loans, assets that can’t be sold on open markets; if we all tried simultaneously to close our accounts, banks wouldn’t have the liquid resources to meet the demand.”
A Digital Economy
Just a decade ago, it’s safe to say most of mankind didn’t even know a thing like cryptocurrency existed, which, even before Bitcoin, it did.
There was E-gold, which launched in 1996 and, as the name suggests, was a digital currency backed by gold. Ten years later, Liberty Reserve, a Costa Rica-based centralized digital currency, was founded as an exchange.
However, both enterprises went down the path of criminal activity, specifically money laundering.
The digital currency - a cryptocurrency - created by Satoshi Nakamoto in 2009 reshaped the conversation. It changed the way money, the way a currency, was thought of and its underlying Blockchain technology, a decentralized virtual clearinghouse and asset registry, as described by Broadbent last month, is gearing up to change the very financial structure of the globalized economy.
Bitcoin represents, in market cap today, over USD $6 billion. It has spawned an industry, from exchanges and financial services to infrastructure, gambling, news media and more. Much more.
The nucleus of any currency is trust
The now infamous Mt. Gox “hack,” an episode that came to light in April 2014, showed the world security against malicious intent was of paramount concern when it came to digital currency (and that could be said of any form of money).
Launched in 2010, the Tokyo-based exchange, the largest at the time, eventually handled around 70 percent of all Bitcoin transactions at the height of operations in 2013.
The total amount said to have been stolen hovered around $450 million (around 850,000 bitcoins).
The need for secure, offline storage was apparent then and that need is no less great today.
“Blockchain security has advanced much quicker than you would see in traditional banking,” Darin Stanchfield told CNBC’s On the Money.
The KeepKey CEO was commenting on the Bangladesh bank hack that occurred at the Federal Reserve Bank of New York where $100 million was reportedly stolen from the government’s account.
Stanchfield explained, with a device like the hardware wallet (or a vault), credentials are presented to the Federal Reserve in order to move money. These credentials would be presented when the device is first initialized and those credentials don’t ever leave the device.