-Caveat Lector- <A HREF="http://www.ctrl.org/"> </A> -Cui Bono?- from: http://www.aci.net/kalliste/ Click Here: <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- Digital Society Ecash 2.0 Let's see. The usual undefined, misunderstood terms: "real thing", "money", "ecash", etc. Digital currencies are sprouting all over the Internet. But virtual money does not yet pose a serious threat to the real thing. MONEY has always been a sexy topic. As has technology. So the hype that greeted the arrival in the mid-1990s of several digital kinds of cash should not have been surprising. Some predicted that private electronic currencies would swiftly compete with dollars or D-marks. Central bankers began to worry that�perish the thought!�they might become obsolete. The reality has proved much less exciting: for electronic cash has flopped badly. Its issuers either went bankrupt (DigiCash), dropped the product (Cyber Cash) or moved into another business (First Virtual Holdings, now MessageMedia ). On the Internet, almost all payments are still made by unsexy credit cards. In fact, digital cash was always a long shot. Around the world, money brings out a conservative streak. Even in America, it took decades to establish the credit card. And the first generation of e-cash was hardly an attractive proposition. Consumers had to install special software. Worse, they could spend their e-cash in only a very few places. Despite that sobering experience, a second generation of financial firms is now giving e-cash another go, online. Hardly a week passes without a start-up venture�usually American�announcing a new form of electronic money. And this time, the prospects look rather better. There appears now to be genuine demand for an online alternative to credit cards, which the rapid growth of e-commerce is bound to fuel. Sometimes, consumers will wish to remain anonymous. Many, particularly outside America, have no access to plastic money. Some are too young. And auctions and other sorts of consumer-to-consumer e-commerce have created a need for online payment between individuals. A survey carried out by Jupiter Communications last year found that consumers are dissatisfied with the way they spend their money online (see chart). Jupiter predicts that the hegemony of credit cards online will wane�but not much. It forecasts a drop from 95% to 81% of the value of such transactions by 2003. Merchants, for their part, might welcome digital cash�after all, credit-card costs take a hefty bite out of their revenue. That is a particular problem for the growing number of websites that sell cheap items�single songs, say. Most of the new financial firms working on e-cash are looking at �micropayments��meaning purchases costing from a tenth of a cent to $10. One way to make such tiny sales worth a merchant�s while is to store value in an online account and deduct small purchases. 1ClickCharge pioneered this approach. Two big computer firms, Compaq and IBM, have developed similar technology. Other firms, such as Qpass, make no initial charge, but accumulate payments and deduct the balance from a credit card. Useful as these services may be, they are little more than an extension of existing payment systems. Another group of firms is trying to go further. Robert Levitan, chief executive and founder of a company called flooz.com, blames the failure of the first generation of e-cash on its lack of a compelling application. Flooz�s answer is gift certificates. Consumers need them, says Mr Levitan, because they often lack time and gift ideas. And merchants like them, because consumers tend to spend them more readily than cash. In this system, present-givers, using a credit card, pay money into an account. They then e-mail it to the recipient, who can spend it at any of 68 merchant �partners�. $5m-worth of flooz certificates are �in circulation�. Another company, Beenz.com, is taking a different approach. What Philip Letts, its chief executive, calls its �big gotcha� is that consumers can earn �beenz� simply by being online. About 50 websites use them to pay people for visiting, filling in online surveys or shopping. Beenz can be spent at other websites. The firm sells its currency to partner merchants at a rate of 100 to the dollar, of which half is its commission; so one beenz is worth half a cent. A similar scheme, run by Cybergold, even allows �cyberdollars� to be converted into real bucks. A more significant source of competition may come from the offline world. Starting in May, the 38m members of American Airlines� frequent-flyer programme will be able not only to earn mileage points by purchasing goods and services on AOL, the world�s largest online service. They will also be able to spend them there. To keep their mileage programs attractive, other airlines may have to follow suit. This could unlock considerable buying power. Frequent Flyer Services, a consultancy, estimates that there are currently more than 3 trillion unused air-miles. Since airlines sell miles for between one and three cents, that lot will be worth somewhere between $30 billion and $90 billion. Schemes such as Beenz and Cybergold, are, in essence, rewards programmes. David Birch, director of Consult Hyperion, a British e-cash consultancy, argues that, since consumers cannot pay each other with beenz or mileage points, they do not qualify as genuine digital money. One technology that does is PayPal, developed by Confinity. After opening an account on the company�s website, people can e-mail dollars to others. Or users can download money to one Palm handheld computer and transfer it to another via infra-red signals. Another firm, e-gold, also enables individuals to exchange money easily, but in a rather unusual way that creates a sort of gold standard for the Internet. Customers fund their online accounts by buying gold or other precious metals. They can then transfer units of those metals (measured in weight) on e-gold�s website by entering a recipient�s account number and a password. E-gold, which is rooted in libertarian thinking, has an ambitious vision of a �risk-free� financial system whose currency is fully backed by a physical commodity. Other private currencies are in use on the online barter exchanges set up recently by such firms as BarterTrust, BigVine and LassoBucks. To make cashless exchanges of goods and services easier, they have had to create their own trading currencies. To establish trust in them some even have monetary governance structures. BigVine, for example, is trying to patent its �monetary policy�. This new generation of e-cash firms appears to be getting more things right than its predecessor did. Confinity boasts 185,000 customers, Flooz.com about 450,000 and Beenz.com more than 720,000. Most of them are growing rapidly�partly because they usually pay new users $10 apiece. But the schemes are far from the digital ideal. Most keep track of what users buy, and so fail to meet demands for anonymity and privacy. And many limit how their money can be spent. The products that offer the most anonymity and liquidity�especially if they can also be spent offline�have the best long-term prospects. Confinity�s technology, for example, will soon be available for cell phones. Users will be able to beam money to vending machines�a service already on trial in Finland (albeit using different technology). Even if e-cash version 2.0 fails, there will certainly be a version 3.0�not least because technology is making it increasingly easy to come up with new schemes. Oakington, a British firm, has developed a standard software platform that other organisations can use to issue their own currency. The system boasts some subtleties. It allows for automatic payment of taxes and �time escrow�, so that a transaction does not clear before goods are delivered. Technology will also make it possible�and cheap�to turn financial assets such as mutual funds into money. There is no reason, argues Hyperion�s Mr Birch, why consumers should not be able to pay their bills directly with units of a mutual fund, instead of having to go through a bank. If the new e-cash proves hugely successful, will consumers start to prefer it to national currencies? That is unlikely. It will be a long time before consumers have the same trust in electronic bills issued, say, by Microsoft as in such proven brands as the dollar or the D-mark. A rational choice: companies go bankrupt, but the Fed has staying power. Yet, even if their currencies are unlikely to be wholly replaced by digital creations, central banks cannot afford to ignore other threats posed by technology. It is, for example, making foreign-exchange transactions much cheaper. Services such as PayPal or e-gold might make it easier for residents of a country with a weak currency to shift their savings into a stronger one. The dollarisation of a country might one day become a mere matter of mouse clicks. Ultimately information technology could, in theory, lead to a pure exchange economy with real-time electronic transactions. And then central bankers� nightmares about their own obsolescence might finally come true. The Economist, February 19-25, 2000 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, All My Relations. Omnia Bona Bonis, Adieu, Adios, Aloha. Amen. Roads End <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. 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