It might be worth delving into a brief history of digital transactions and their rise to pertinence. The first debit and credit cards were introduced in the US during the 60s, although it wasn’t until the 80s that the revolutionizing payment method started taking off, as more and more ATMs start appearing across the country. By 2010, 55% of American consumers reported that they used debit or credit cards for more than half of their purchases. Banks benefit from being able to charge a nominal fee for each card transaction. With the advancement of globalisation, major banks starting issuing international payment cards that could be used in several countries. The internet introduced an additional level of convenience, as customer could check their bank statements online. E-commerce would revolutionize modern economics even further, as users could now order products from across the world with the click of a button – all thanks to digital transactions. More recently, ‘virtual currency’ has been changing the way we think about money…
In the past ten years we have developed currencies specifically for online transactions, which can not be converted to physical cash and can therefore only been spent digitally. In other words, the key difference between digital currency and virtual currency is that digital currency represents a physical currency whilst virtual currency exists only online. Virtual currencies are often bought with “real” currencies – typically as a form of investment, as the value of a set sum of virtual currency might increase in the future. Within the realms of virtual currency, cryptocurrencies have grown to be the most commonly recognized, with governments even imposing tax on them. Bitcoin is the most notable example.
The implications Bitcoin are far-spanning. Foremost, the idea that it is possible for an individual to have created and introduced a form of currency raises questions regarding the possibility of this happening again and what the sudden introduction of new, taxable currencies could mean to the economy. Secondly, the absence of an intermediary party (banks) suggests there’s a chance that power and control could be further removed from centralized finance institutions in the future. “Whether bitcoin survives or not, the technology underlying it is here to stay. In fact, that technology will become ever more influential as developers create newer, better versions and clones,” writes the Wall Street Journal. The incredible growth of the cryptocurrency saw the introduction of certain businesses that dealt exclusively in Bitcoin. In particular, there emerged multiple poker rooms and technology brands which accepted only Bitcoin in payment.
Kenya provides another interesting example of what can be described as a development within digital transactions. As of 2007, the biggest mobile network providers in the country introduced M-Pesa, a form of currency which is transferred by phone. By 2014, over 17 million M-Pesa accounts had been created in Kenya, with 43% of Kenya’s GDP flowing through this payment method. The main benefits of M-Pesa has been a “reduction of crime in otherwise largely cash-based societies” and the way in which it has given people more financial control – particularly to those who may otherwise not have had easy access to a bank. Without a doubt, M-Pesa has become the most successful form of mobile-based currency in the world.
As evident from Kenya’s unique and successful venture into digital transactions, there are several benefits to digital currencies. The element of crime reduction, convenience and efficiency is undeniable, but what about the disadvantages? There are some potential downsides to consider when we discuss the likelihood of a cash-free world. This primarily has to do with susceptibility to cyber attacks such as hacking. Whilst banks are always improving upon methods to counterfeit fraud, there is always the risk of a sophisticated attack upon a major financial institution, the consequences of which could be dire.
One thing to take away from the seemingly unstoppable growth of digital transactions is that you should not underestimate the potential benefits of investing in a promising virtual currency. Secondly, you should always consider the safety settings and general security of your online banking methods. Lastly, you can expect your piggy bank to one day become an iconic relic of the past.