This and other questions are addressed in “The Weightless Marketplace: Coming to Terms with Innovative Payment Systems, Digital Currencies and Online Labor Markets,” a just-released report that I wrote for the Aspen Institute’s Communications and Society Program. The report distills the more salient points raised at a three-day conference last August that brought together leading players in banking, financial services and online labor platforms.
Most of the conference participants are in the business of inventing or adapting to new types of digital payment systems or data-based services. They include major players like JP Morgan Chase, Intuit and VISA as well as upstarts such as Bitcoin, ID3 and the identity-management service Personal.
The basic story in digital markets is the ongoing elimination of “friction” in making transactions – reducing the barriers of geography, time and transaction costs. Hence the title “the weightless marketplace.” “Reducing economic friction” has been the story of the World Wide Web from its beginnings, of course, but the trend is now reaching new levels of intensity and disruption. My role, as rapporteur, was to represent the diverse points of view while providing my own interpretive synthesis.
Perhaps the most fascinating points of discussion revolved around Bitcoin. Notwithstanding the controversy surrounding it, Bitcoin’s basic functionality and soaring popularity have some serious implications for banks, credit card companies, PayPal and other payment systems. Peter Vessenes of the Bitcoin Foundation noted that digital technology can move value to anywhere in the world, at any time, using just 100 bytes of data. And it can do it at very little cost – much less than the per-transaction charges levied by credit cards, for example.
Critics charge that Bitcoin facilitates illicit transactions, money laundering and terrorist activity, not to mention tax evasion. Vessenes replied that Bitcoin is “way less anonymous than cash” – because the permanent global ledger of transactions for each Bitcoin is accessible and can be used to help identify buyers and sellers. Another reason that Bitcoin is controversial is that it represents a potential threat to the sovereignty of nation-states, because it could undermine their monetary and fiscal policies. That’s why regulation of Bitcoin is inevitable, many agreed.
But apart from Bitcoin’s fate, the larger question may be how existing banks and financial companies will respond to the coming “democratization of money.” Several factors are fueling this trend, according to Gartner, the consulting firm: individual access to massive, high-speed flows of information, the proliferation of mobile computing (smartphones, tablets, etc.), the rise of the cloud, and the social commons of highly specialized communities of interest.