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 Guardian, new scientist, Wiredand CNN.
Here Scott shares five key insights from his new book, Cloudmoney: cash, cards, crypto and the war for our wallets. Listen to the audio version – read by Scott himself – in the Next Big Idea app.
1. The US dollar is made up of three different currencies with the same name
We are often led to believe that digital payments are an advanced upgrade from physical cash, but this is deeply misleading. We live in a hybrid monetary system with at least three different forms of money interacting symbiotically. The first is physical money issued by government institutions, such as the Federal Reserve. The second is digital dollars issued by banks. The third is issued by companies, such as PayPal.
Imagine me walking into a casino and handing over $100 in government cash for $100 in casino chips. The casino seized my money while issuing a private form of money – casino chips – to me. There are two forms of money here: government money and privately issued casino chips that can be exchanged for government money.
This picture of chips issued by individuals is very useful for understanding the banking sector. When you deposit money in a bank, the bank takes your money and issues you “digital chips” which can be used within the limits of the bank payment system. They can also issue many more digital chips than they have in government cash, and a huge amount of what we call “money” is actually issued by commercial banks in this form. Players, like PayPal, can take possession of your bank-issued tokens and issue you their own tokens.
2. “Cashless society” is a top-down euphemism
A “cashless society” is one in which we become totally dependent on digital chips issued by banks and corporations. Calling it a “cashless society” is like calling whiskey “alcohol without beer”. It’s evasive. I was in a “cashless” pub in London recently, and to pay for a single small item I had to download an app that required interacting with at least three mega-corporations. I was supposed to use Google or Facebook for identity, two commercial banks for digital money, and Visa or Mastercard for messaging with those banks. “Cashlessness” is a euphemism for a distant conglomeration of data-hungry, profit-driven corporations that seek to come between me and those I’m trying to pay.
The movement towards a cashless society is presented as being driven from the bottom up by consumer choice. The truth is, there has been a top-down war on cash for decades, waged by institutions that want to make it more likely that we will choose digital payment. These include banks, payment companies, fintech companies, big tech, and even governments. Commercial actors have two objectives: to make profit and to obtain data. The political actors have one objective: to increase control.
3. Physical money is the cycle of payments
People often talk about convenience as if it could be increased indefinitely with more technology. Supposedly, we’ll have more leisure as technology advances, but in reality, we’re busier than ever.
Convenience is a relative concept. Imagine a person on the outskirts of Los Angeles planning to drive to their 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 to begin with. This is because of cars. In capitalist economies, technology is rarely used to increase leisure. They are quite used to develop and speed up the economic system. Once this happens, our environments are recalibrated. A person on the outskirts of Los Angeles is not liberated by the automobile industry which provides them with amenities. They are capture by the structural hold of industry on their lives.
Just as we see millions of people “choosing” to buy cars in an urban environment that has been altered by the auto industry, many people will also feel “chosen” to use digital payments in a dominated economy. by big finance and big technology. . These industries have much more to gain from digital payments than we do, and the “convenience” they provide depends on us becoming dependent on their power. In this context, the digital payments industry presents cash as the horse-drawn cart, an outdated form that clogs economic highways. In reality, cash is more like the public bicycle of payments, enabling peer-to-peer, localized and resilient transactions.
4. Fintech does not revolutionize finance, it simply automates it
After the 2008 financial crisis, entrepreneurial technologists argued that digital could disrupt and democratize finance. Fintech companies presented themselves as revolutionaries, but they rarely wanted to fundamentally reform the financial system. They just wanted to make the same old system faster and more automated by designing apps that could be stuck on top of it. Rather than interacting with service staff at a bank branch, we are encouraged to do self-service over the phone. Fintech has also turned to automating banker jobs. Instead of a human evaluating your loan application, an algorithm will.
This is why the fintech industry is anti-cash. Offline cash is difficult to integrate into automated systems, so the fintech industry presents cash as obsolete. These so-called revolutionaries have slowly but surely merged with the existing financial system. Banks have a strong drive for automation, so they have started to absorb fintechs. On average, the fintech sector has reduced costs for the banking sector and thus allowed it to spread into segments of society that were previously isolated from it. It’s often called financial inclusion, but people are included in data-hungry corporate 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 indiscriminately jumping on the fintech bandwagon, we should ask ourselves how to balance digital and analog systems.
5. Bitcoin does not challenge the monetary system.
In the 90s, a group of activists known as cypherpunks experimented with creating alternative forms of digital money to act as a counterbalance to the banking industry. In 2008, a person or group going by the alias of Satoshi Nakamoto took a range of cypherpunk innovations, combined them into an elegant recipe, and called the result Bitcoin. It is a system that allows vast networks of strangers to issue tokens and move them among themselves without banks. Bitcoiners claim it can save us from the vortex of big tech, big finance, and big government.
I was involved in the early bitcoin community, but quickly realized the system was a sophisticated way to move raw tokens. The innovative technology architecture makes people believe that the tokens are equally sophisticated, but in reality they are limited edition digital items that are only brand like money. Think of them as digital medallions that mimic the surface appearance of silver while being bought and sold for dollars in today’s monetary system.
These digital medallions can be used for exchange through a process called counter-exchange. I can hand over two $500 wristwatches as payment for a $1,000 computer, but implicitly I’m actually selling the watches to the owner of the computer for $1,000 and then giving them that money back to buy the computer. ‘computer. An alien observing this interaction might believe that the watches are some kind of money, but in reality the money is the dollar system hidden in the background. Similarly, I can counter-exchange dollar-priced bitcoin shards for a dollar-priced computer, but the reason bitcoin is effective here is that it parasites of the dollar rather than challenge it.