The future of digital money is not on the blockchain

This means that, despite the various options for making payments online, true digital money does not exist. This is not just a theoretical distinction. Paper money has been in decline for years, a trend that has accelerated during the pandemic as more businesses have decided to stop accepting paper money. This poses risks, especially for the so-called unbanked, i.e. people who cannot afford a bank account and therefore cannot access payment methods other than cash.

Governments around the world, spooked by the rise of privately-issued cryptocurrencies, have explored so-called central bank digital currencies, or CBDCs. Imagine a government version of PayPal or Venmo. It could solve the unbanked problem by creating a public banking option for low-income people, but it would not replace cash. As the economy moves inexorably towards all-digital transactions, a future where our only options are payment apps, banks, crypto, or CBDCs means a future in which every financial transaction is potentially subject to government surveillance or of private companies.

The ECASH Act, introduced by Rep. Stephen Lynch, a Massachusetts Democrat and chairman of the House Fintech Task Force, seeks to avoid that fate. (It stands for Electronic Currency and Secure Hardware Act — a flawless legislative acronym.) The bill, which Gray consulted on, would direct the U.S. Treasury Department to conduct a pilot program for a version of digital dollars that works like cash. cash.

“If we’re going to have a public option for digital finance, it has to include everyone,” says Yale Law School scholar Raúl Carrillo, who like Gray consulted on the legislation. “A key part of that is being able to disconnect.”

What would that look like? The Treasury would issue digital dollars, just as it has been issuing paper money since the 1860s. To function as money, money cannot live on the government books or in a distributed blockchain ledger. This means balances must be stored on hardware. It could look like a standalone device, or it could be a secure hardware environment on your cell phone, similar to a SIM card – essentially a chip that’s physically separate from the rest of the device, so that it doesn’t depend not on the security of the entire operating system.

This idea has been around for a while. In the 1990s, companies like Mondex developed stored-value cards that could support offline payments. Governments, however, have not embraced the idea of ​​issuing digital currency, and these companies have been taken over by the credit card industry. (As Steven Levy of WIRED wrote, in 1994, “When I called a Federal Reserve spokesman to ask about electronic money, he laughed at me. It was like if I inquired about exchange rates with UFOs.”)

Today, technology is more elegant and its applications more apparent. Last week, I spoke with Razvan Dragomirescu, the CTO of WhisperCash. On Zoom, he showed me his company’s products. One looks like a credit card that has both a touchscreen keyboard and a miniature Kindle-style e-ink display. Payments can be sent between cards via Bluetooth or by entering the recipient ID number and amount. In the latter case, the transaction generates a 10-digit cryptographic hash that encodes the parties to the transaction and the amount. To receive it, the recipient must enter this code in their own card. WhisperCash’s other main product, a secure chip that sticks onto a SIM card, turns a phone – even a cheap “feature phone” of the type common in the developing world – into a wallet for digital cash.

About Miley Sawngett

Check Also

Applications for Chicago’s $500-a-month cash program close Friday. Here’s how to apply – NBC Chicago

You only have a few hours left to apply for a Chicago cash assistance program …