Criticism of money and digital technology

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 Guardian, New Scientist, The cableand CNN.

HERE, Scott shares five important 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 three different currencies with the same name

We are often led to believe that digital payments are an advanced upgrade to physical cash, but this is deeply misleading. We live under a hybrid money system with at least three different forms of money interacting symbiotically with each other. The first is physical cash issued by public institutions, such as the Federal Reserve. The other is digital dollars issued by banks. The third is issued by companies, such as PayPal.

Imagine I walk into a casino and hand over $100 in government cash for $100 in casino chips. The casino took ownership of my money while issuing a form of private money – casino chips – to me. There are two forms of money here: government cash and privately issued casino chips that can be redeemed for government cash.

This picture of privately issued chips is very useful when trying to understand the banking sector. When you deposit cash in a bank, they take ownership of your cash and issue you “digital tokens” that can be used within the framework of the bank payment system. They can also issue far more digital tokens than they have in government cash, and a large amount of what we call “money” is actually issued by commercial banks in this form. Players, such as PayPal, can take ownership of your bank-issued chips and give you their own chips.

2. “Cashless society” is a top-down euphemism

A “cashless society” is a society where we become completely dependent on bank-issued and company-issued digital chips. Calling this a “cashless society” is like calling whiskey “alcohol without beer”. It is elusive. I was recently in a ‘cashless’ pub in London and to pay for a single small item I had to download an app that required interaction with at least three mega-corporations. I would use Google or Facebook for identity, two commercial banks for the digital money, and Visa or Mastercard as means to send messages to these banks. “Cashlessness” is a euphemism for a distant conglomeration of data-hungry, profit-driven companies that seek to come between me and those I try to pay.

The movement towards a cashless society is presented as if it were driven from the bottom up through consumer choice. The truth is that there has been a top-down war on cash for decades, driven 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. The commercial players have two goals: make money and get data. The political actors have one goal: increase control.

3. Physical cash is the payment cycle

People often talk about convenience as if it can be infinitely increased through more technology. We will supposedly have more free time as technology advances, but in reality we are busier than ever.

Convenience is a relative term. Imagine a person on the outskirts of Los Angeles considering how to get to their workplace 10 miles across town. In this context, walking seems impractical, and having a car seems practical, but ask yourself why this person lives 10 miles from their office to begin with. It is because of cars. In capitalist economies, technologies are rarely used to increase leisure time. Rather, they are used to it expand and accelerate the economic system. When that happens, our environments are recalibrated. A person on the outskirts of Los Angeles is not liberated by the automobile industry that provides convenience. They are caught of the industry’s structural stranglehold over life.

Just as we find that millions of people “choose” to buy cars in an urban environment that has been changed by the automotive industry, many will also find that they “choose” to use digital payments in an economy dominated by big finance and big technology. . These industries have far more to gain from digital payments than we do, and the “convenience” they offer is based on us becoming dependent on their power. In this context, the digital payment industry presents cash as the horse-drawn payment cart, an outdated form that clogs up the financial highways. In reality, cash is more like the public payment bicycle, enabling peer-to-peer, localized and resilient transactions.

4. Fintech doesn’t revolutionize finance – it just automates it

After the 2008 financial crisis, entrepreneurial technologists argued that digital technology could disrupt and democratize finance. Fintech companies presented themselves as revolutionaries, but they rarely wanted to make deep reforms in the financial system. They just wanted to make the same old system faster and more automated by designing apps that could be pasted over it. Instead of interacting with service personnel in a bank branch, we are encouraged to do self-service by telephone. Fintech also moved to automate the jobs of bankers. Instead of a human evaluating your loan application, an algorithm will do it.

This is why the fintech industry is anti-cash. Offline cash is difficult to integrate into automated systems, so the fintech sector presents cash as outdated. These so-called revolutionaries have slowly but surely merged into the existing financial system. Banks have a strong desire to automate, so they started absorbing fintech. The fintech sector has, on average, cut costs for the banking sector and thus enabled it to spread to parts of society that were previously isolated from it. This is often called financial inclusion, but people are being included in data-hungry business systems with enormous power dynamics.

Simpler, slower and smaller systems can be far more robust and inclusive than complex, fast and large digital ones. Instead of uncritically jumping on the fintech bandwagon, we should ask ourselves how to balance digital and analogue systems.

5. Bitcoin does not challenge the monetary system.

In the 90s, a group of activists known as cypherpunks experimented with building alternative forms of digital cash to act as a counter force to the banking sector. In 2008, a person or group under the pseudonym Satoshi Nakamoto took a number of cypherpunk innovations, combined them into an elegant recipe, and called the result Bitcoin. It’s a system that allows huge networks of strangers to issue tokens and move them between them without banks. Bitcoiners claim that this can save us from the maelstrom of big tech, big finance and big government.

I was involved in the early Bitcoin community, but quickly realized that the system was a sophisticated means of moving raw tokens. The innovative technological architecture tricks people into thinking that tokens are also sophisticated, but really they are limited edition digital objects that are only labeled like money. Think of them as digital medallions that mimic the surface appearance of money as they are bought and sold for dollars within the actual monetary system.

These digital medallions can be used for exchange via a process called countertrade. I can hand over two $500 watches as payment for a $1000 computer, but implicitly I’m actually selling the watches to the owner of the computer for $1000, giving them the money back to buy the computer. An alien watching this interaction might think the watches are a type of money, but the money is actually the dollar system hidden in the background. Likewise, I can trade fragments of dollar-priced Bitcoin for a dollar-priced computer, but the reason Bitcoin is efficient here is because it parasites of the dollar rather than challenging it.