Reinventing money

Money is a very old invention. As soon as you go beyond subsistence farming, such that you're creating a surplus which you might want to exchange then money becomes an obvious trading technology. Money can be represented by anything, so long as that thing is difficult to reproduce without expending effort commensurate with things of value and it's agreed upon within a community as a token of exchange.

There are problems within the current money system which result in the creation of tokens without corresponding goods or services - a kind of fraud - and monetary reform seems to be a desirable goal to work towards. Cryptocurrencies, although really just another kind of token, offer hope that the current bugs in the monetary system have a technological solution. This takes the creation of money and the administration of its movement out of the hands of a few cronies and makes it algorithmic in nature - independent from any particular individual, organisation or government.

Here is a discussion about Bitcoin, which is a type of cryptocurrency. Whether Bitcoin succeeds or not in becoming a common method of value exchange remains to be seen, but cryptocurrencies in general seem to be the way to go with regard to eliminating the current inefficiencies and inconveniences in the money system. Efficient online micropayments is just one of the possible applications.





There are a couple of problems with Bitcoin that I can think of.

The most obvious one is that the people who are likely to become the wealthiest are those with large computational resources to do the mining in the early years after the currency was initiated, and people with such resources are likely to be already wealthy groups or institutions - such as financial trading companies who own supercomputing clusters.

Another issue is that there is no algorithmic mechanism within Bitcoin to encourage circulation of money, and this is compounded by the fact that after twenty years or so no further Bitcoins will be created. A possible failure case is that many users of this currency just sit on it, like a stash of gold. Instead there should probably be a modest but constant inflation rate (2% per year for example), with no upper limit. This would still allow a high degree of currency predictability which is good for business, but discourage organisations or individuals from sitting on their heap of gold for too long, otherwise it gradually loses value.