Many forms of so-called digital money aren't actually that innovative. From their characteristics we can understand if they will survive or end up in a soap bubble.
For millennia, social and financial experts have considered the risks of "bad" money on the market. Times (like this one) of financial tensions have always been characterized by the introduction of "imprecise holders of value". Digital money, alternative ways of representing and quantifying value, to be exchanged for other things or accumulated as “wealth”.
A current theme like never before, today that large companies such as Apple, Uber and Facebook are joining the push for fintech and digital money. Especially if they offer (see the Libra case) a range of options that are not always easy to distinguish, not to mention the fair value of their solutions.
Digital finance has many forms, but it is not always "money"
Modern societies have coined countless names for objects, goods and currencies to be exchanged (such as the admirable "grana", "dindi", "sacks" and "testoni"). For practical purposes, we often group them as "money", but the main varieties are actually quite different.
Today consumer life mainly deals with two types of money: the first it is a type of currency known as currency fiat, like the British pound, whose value is insured by the government that issues it (and not by an equivalent amount of gold or silver). The second one type are commodities: things that have intrinsic value (such as gold, silver and oil) and can be exchanged or sold based on this value.
In 2020, only 10% of the fiat currency in the world exists as real, physical money. Most exist only digitally and move everywhere in a complicated pattern between our bank accounts and various other destinations.
"Banks and credit card networks would tell you that money is already digital"Says Lex Sokolin, Global FinTech Co-Head at the blockchain company ConsenSys. "What we transfer from one bank account to another using payment systems or major banking systems is just the responsibility of the software between the business entities."
In places like UK, USA, Mainland Europe and China, there is a strong push towards this transition (not so in Japan). It focuses on card and contactless payments in more and more aspects of daily life.
Many businesses already accept only contactless cards and / or payments. What moves for the near future?
Payment tracks and digital wallets: from department store credit cards to Apple Pay and Uber Money
The idea of custom or company-specific payment systems is popular, but not new. In the US, department stores like Macy's and Sears were among the first to formalize the management of a branded credit card that offers benefits. Discounts, reward points and the opportunity for more convenient payments.
And the "tokens"?
Money that is "found" in an Uber Money account or some Apple apps is not actually digital money. It is a reward point or a debit to a bank account linked to the user experience.
The Uber Money case - another clear example of a “payment platform” is Uber. The company plans to offer credit accounts for cyclists and debit cards with deposited earnings for overdraft protection for drivers. It can be a way, experts point out, to motivate employees and prevent them from switching to the competition. It can also change their payment habits, taking them to digital credit and making them abandon cash.
A safe haven business in case the company's core business does not go well? One day companies like Uber, having acquired a user base for credit services, will they start doing the Banks?
And then there is Libra
Facebook's answer to cryptocurrency and decentralized currency. A rather turbulent answer for now. Last year, Zuckerberg announced his plans to launch a new digital "coin" or "cryptocurrency," as well as a separate organization charged with managing it democratically.
The world of cryptocurrency and blockchain has a relatively short history and probably contains unknown territories for both engineers and the average reader. Unlike fiat money, mathematically complex digital products called "cryptocurrencies" are usually not tied to governments or private companies and use different methods and amounts of energy (as well as different philosophies) to create their decentralized currency models.
Libra could become private money. Users should completely trust the companies that "coin" it. And we know that these often don't act in the best interests of users. They cheerfully collect personal data, charge hefty fees, arbitrarily ban users.
This is why what Facebook is proposing (a so-called “stablecoin”) doesn't seem feasible in the long term.
Libra is a way for alternative capital to simulate the return on a bank account, without succumbing to settlement, but maintaining the interest margin. For this reason, governments around the world will reject the initiative, or weaken it.
The financial crisis due to coronavirus can also accelerate these dynamics
The future of Fintech it is one of the many uncertain factors at this particular moment in economic history, given the unprecedented impact of Covid -19.
The market could explode in the next couple of months, or we could see people taking their money from the many people converting their money into digital currency fearing default. This could be useful for the economy, but the key is innovation. Creative ideas are needed, because the current situation is something the world has never seen.
People will have to think of many creative ways to make money and get value from that money, especially now and in the near future.