Steadfast FinancesCould a Digital, Peer-to-Peer Currency Replace Your National Currency?

Could a Digital, Peer-to-Peer Currency Replace Your National Currency?

Filed in Business Trends , Microtrend Investing 10 comments

Would you prefer a digital currency over your national currency?

If given the option, would you prefer a small portion of your income to be paid in Twitter Bucks? How about Elance Dollars? Maybe Facebook Credits? It’s not like a major social media player couldn’t throw some muscle behind the idea. After all, Facebook has 250 Million followers backing up its future business potential.

What if, just for the sake of brainstorming, the Internet became a medium where Peer-to-Peer transactions (via bartering arrangements) replaced the need to exchange a standardized currency where you could completely sidestep the necessity of exchanging dollars, pesos or XYZ national currency for your goods and services?

What if you could use your individual talents (and keep your mind out of the gutter) to successfully barter for your goods via the Internet?

I’ve never really given it serious thought before, but after watching the WSJ below, I’ve been giving it some serious thought.

[RSS and email readers click to site for video]

How would/could governments stop it?  How could governments extract tax revenues?  When traveling abroad, would you even need to worry about currency exchange rates ever again?  What would happen to Forex speculators traders?

Many U.S. states have had (still having) difficulties figuring out how to successfully tax Ebay transactions or Amazon.com affiliate payments, and now a maverick idea like this comes along?

Granted, the idea completely decentralizes 800 years of financial practices and every semi-functional government on the planet would have a simultaneous cow, but is such a Utopian idea just crazy enough to work?

Whatever the outcome, it seems like it would be a fun experiment.

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Posted by CJ   @   18 September 2009 10 comments
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10 Comments

Comments
Sep 19, 2009
2:19 am
#1 Hank :

Are we already doing this with PayPal? PayPal has crossed the national boundries between countries just like you discribed.

Sep 19, 2009
11:28 am
#2 Matt SF :

PayPal definitely crosses borders, but I think the big question is could an optional digital currency be used with a service like PayPal?

As it stands now, you can use US Dollars to fund a PayPal account to pay someone in British Pounds (or other currencies) but what if a system was devised where PayPal gave an alternate/digital/fictional currency?

As the HubCulture.com site has done, could the popularity of using a currency like “Ven” be used as a substitute to Dollars, Pesos, etc?

Could a U.S. based blogger write guest posts for a German blog, and have enough Ven for a free place to sleep? Most of us do something along these lines more than we think (I owe you, you owe me, etc) but what would it take to streamline the process and push it into the mainstream?

Sep 20, 2009
8:56 pm
#3 MLR :

For me to accept PayPal’s fictional currency, I would have to ask them:

What is this currency WORTH in real money? How do I know that? How do you know that? Does this change? Based on what?

How do I convert my monies into this fictional currency? If it’s $1 = $1 in fake currency… is this fake currency not just pegged to the dollar then?

If you are suggesting that no real money is used to fund this fake money… then how does the fake money get started? Does PayPal essentially release 1,000,000 of them and say “go at it!” Once they run out of money and people aren’t using it, do they make more and further illegitimize the fake currency? The biggest issue here is no one would be governing the fake currency and it’s value. I still don’t understand why they would even issue 1,000,000 of them if they aren’t being compensated in real dollars, though.

How does PayPal make money off of it? So they take 2% of my PP bux, what can they use it for? They can’t put it in the bank.

It’s an interesting concept until you start asking all of the necessary questions around currencies.

Correct me if I went off base!

Sep 20, 2009
9:28 pm
#4 Matt SF :

@ MLR

No, I think you’re right on track. There are lots of How To’s and Where Do’s with this new concept (microtrend). That’s what makes it so appealing, yet such a pain in the a**. Haha!

It doesn’t have to be based on PayPal. In fact, I’m not a fan of the PayPal setup anyway considering how much PayPal charges (skims) per transaction. To me, this digital currency system would operate free of any transaction fees and that could be one of the main selling points. Of course, should you even try to monetize the site or go a Craigslist.com route?

If it were designing a digital currency, I would start by basing it on units on time, demand for those skills, and how highly the community ranks your skill set. Say 1 hour = 20 Ven at the very basic level and 1 hour = 100 at max.

Of course, education and experience would need to be evaluated and factored in based on community interaction and grading. For example, a 10 year SEO expert’s time should be worth more than a noob blogger’s writing skills.

I’m not sure I would give currency away like Monopoly Money for Passing Go, but I would have a system where people could buy the digital currency if they didn’t have enough to meet their needs so they wouldn’t have a huge barrier to entry. But in the beginning, instead of just creating money out of the cyberspace ether (like The Federal Reserve), users could earn it by working on whatever projects they wanted.

But you found the Achilles Heel with governing this imaginary currency. That part would be incredibly difficult, and you would probably need a multitude of regulations or a fairly obsessive community hellbent on self regulation.

Other tangents…

1) Could you earn interest on your Ven?
2) How does (how could) it transfer to real world money?
3) Should it be inflation proof or tied to a hard asset?

Lots of questions, and I’m probably not qualified to answer them all, but I do think it’s going to happen within our lifetime. Not sure if it permeate into the mainstream, though.

Sep 21, 2009
7:14 am
#5 Kyle :

See this is already getting too complicated for me to keep track of, why do I need some weird currency anyway. Bartering should be the trading of services and goods.

Cut the middle man out and forget cash all together. Either way though I am not interested in some online currency. I like my cold hard cash.

Sep 21, 2009
10:53 am
#6 Matt SF :

I don’t think it’s that complicated. It would be tough to setup the currency rules and create a governing process, but once the bugs are worked out, the only thing left to do is sell the idea. To me, selling the idea and devising a way to push it into the mainstream is — by far — the toughest part of the program.

Bartering could, and should, be the primary way of exchanging the services you need in this setup. However, if you have something that other people want, but they have nothing you would want, that is where a digital currency could come into play.

Nov 11, 2010
10:54 pm
#7 Scotty :

I think what you guys are looking for has been done. It’s called Bitcoin and you can see it at bitcoin.org

Feb 1, 2011
12:23 am
#8 It's all fiat :

You went “off base”. There is no such thing as “real” money. The value of currency is really based upon perception. Even the value of gold is based on what the market at any given time is willing to pay for it. If there were theoretically only 1 million US dollars and PayPal made 1 million PayPal dollars, they wouldn’t automatically exchange at one for one. Maybe, and likely, folks would believe that the USD is more secure and, thus, place a higher value upon it. The fictional need to have a governing agency, however, is probably my biggest concern with your entire essay. That’s the one thing we DON’T need. Most modern economists agree that governments can’t match the free market when it comes to making cars, growing wheat, or shipping things across the ocean. Why managing money? Why the schizophrenia?

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