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IRRITATINGLY ANALOG THE DIGITAL SWITCHOVER OF MONEY

TOM ADCOCK


Written by Tom Adcock For Contextual Design at Brunel University 2014


CONTENTS Introduction 1 Diamonds Are Worthless 4 There’s Nothing Like A Dollar Bill

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The Leap of Faith 16 The Mobile Future 20 Afterword: “Designers Must Learn Witchcraft” 24 Bibliography 25


Money, in its many different forms, has been a constant throughout history. As a species, we have been trading with metal coins since 700 BC and paper money since the 13th Century. In 1950, the first credit card was released. By 1995, over 90% of transactions in the United States were made electronically. Money is literally an expression of value; a tool to quantify worth. When you think in these terms, the possibilities become vast. Money has always been something physical; something you could hold and touch. But as children born in the digital age grow up and become leaders and innovative thinkers, increasingly money isn’t something tangible, but something digital and invisible. So, what is the next step for money? Will we continue to cling on to a cash-based currency? Will digital currencies take hold? Where are we now, and where are we headed?

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DIAMONDS ARE WORTHLESS Money came around because of the instinctive human desire to trade. We have been trading for centuries and some scientists even believe this desire to trade is hard wired in our DNA (Bernstein, 2009). For a long time, our ancestors traded simply by swapping what one person owned with the next. Sure, swapping your apple for my orange works, and did work for a long time - but this kind of trade is reliant on the economic term: ‘the double coincidence of wants’ (Jevons, 1875). If you don’t like oranges, then there is nothing we can do. Unless, we come up with something else for me to give you, something we know other people will accept in an exchange later down the line. Thus, the idea of money was born. For a long time, humanity was unsure exactly what could be deemed as currency. Stone monuments the size of tabletops have been used as money on the island of Yap, and still are to some extent (Friedman, 1991) - rendering them an economists go-to example to prove the point that items themselves don’t have to physically move to function as money, only the understanding of ownership has to shift. Money can actually be anything we want it to be. As long as you accept it, I could give you anything as ‘money’ - what sets apart cash is the widespread acceptance of ‘value’. When you think logically, diamonds aren’t worth anything unless you want to cut something really hard; It is the perception of rarity as value which the diamond industry has instilled in us which is why cash works. Provided the ‘amount’ of cash in an economy doesn’t change, it doesn’t matter if that value is in ones and zeros, diamonds, paper money or even stone monuments. The only thing money really needs to function is ‘fungibility’. Fungibility is an economists’ term used to describe the interchangeability of cash; the fact that cash can be used for anything with a predetermined understanding and trust in its value (Investopedia, 2014). This is where paper money scores high; you can accept the value of a banknote, knowing that as an object, it is almost worthless.

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Why wouldn’t this work as a digital number rather than a printed one? If I transfer £20 from my account into yours, you have £20 more to your name and I have £20 less, why do we need a paper token of this? We now have the ability to exchange value by digital information, rather than dirty banknotes; which is strikingly efficient. When you understand that the unit of value doesn’t need to be something physical, it is merely a transfer of ownership, the case for digital money becomes more obvious. In fact, scratching beneath the surface, merely having paper money in circulation is costing us. In a 2010 British government report entitled “The Way We Pay”, the costs of cash were outlined clearly - “With around a billion banknotes created, distributed and destroyed every year, the production and secure transportation of notes is an expensive and environmentally costly business paid for by the tax payer” before suggesting that “A progressive move away from cash could hold many benefits”. (The Payments Council, 2010) When you factor in the costs of electricity to run manufacturing systems, the actual printing of money and then the fuel used to securely transport it between banks in armoured vehicles; the environmental costs of cash begin to shine through. If we were to embrace the digital switchover it would go some way to cut these costs; in the same way a digital newspaper is less costing to the environment than printing and distributing a physical one. What about outsmarting counterfeits? The history of counterfeited money is almost as old as money itself. Banknotes from the UK and around 150 other countries are printed by ‘De La Rue’ in France (De La Rue, 2013). Here, they have spent time and money developing technology to detect counterfeits and produce banknotes which are very difficult (but not impossible) to replicate. It’s hard not to draw parallels to the 1960s urban myth, in the age of the space race NASA reportedly spent millions of dollars developing a pen which

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“In an era when books, movies, music and newsprint are transmuting from atoms to bits, money remains irritatingly analog. Physical currency is a bulky, germ-smeared, carbon intensive, expensive medium of exchange. Let’s dump it.” DAVID WOLMAN

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would work in zero gravity conditions in space, when their Russian counterparts simply equipped their astronauts with pencils (Provost, 2009). In his critically acclaimed book entitled “The End of Money”, David Wolman declares that “in an era when books, movies, music and newsprint are transmuting from atoms to bits, money remains irritatingly analog” (Wolman, 2012) and to some degree, he is correct. We are now using digital transactions more than ever and bank transfers are becoming the norm. David, whilst researching the possibility of a ‘cashless future’ decided to spend an entire year without touching cash, dealing only with digital money - credit card payments and bank transfers. Unsurprisingly, he found this very easy, give or take a few situations which were awkward at worst. The thing is: money, savings, spending - already almost all of it is virtual. We just need to take that last step, rendering money an entirely digital system. During his cash-free holiday, David actually claimed it would be exponentially harder to spend a year dealing with only cash (Wolman, 2012). At this point, the answer seems fairly obvious - let’s go digital. In our virtual age, has cash become redundant? Unfortunately it is not that clear.

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THERE’S NOTHING LIKE A DOLLAR BILL The problem is, we love cash. We love the way it feels, the way it smells. We love opening a birthday card to see a crisp banknote fall out. We love waking up as a child and reaching under the pillow to touch a shiny gold bravery medal for the loss of a tooth. There are still generations of people living in this world who have grown up with this romantic idea of money throughout their youth - and they will continue to cling on to it. As time goes on and the switch to a digital-based monetary system becomes more inevitable, it could in fact be the emotional connection we hold with cash which turns out to be one of its strongest defences. On the other side of the coin to this great romance with cash, there is a more sinister world. Cash is fantastically anonymous, yet still remains trustworthy; everyone will accept it in an instant. Unfortunately, this anonymity of cash makes dishonesty all too easy. Once the ‘transaction’ has taken place, there is no record that the banknote now tucked neatly into a stripper’s underwear was previously in your husband’s jacket pocket. And it is not just deceptive husbands using cash as a tool for dishonesty. Cash is a tool for criminal operations on a huge scale. High-denomination (500, 200 and 100 euro) notes make up nearly 60% of the euros circulating in Europe (European Central Bank, 2010), although “circulating” isn’t the best way

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“CASH IS A TOOL FOR CRIMINAL OPERATIONS ON A HUGE SCALE”


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to describe this money. A study conducted by the Bank of Italy found that the €500 note is a tool used only by smugglers, money launderers and drug dealers (Casciani, 2010). In Spain, this note is nicknamed the “Bin Laden”, because no-one has ever seen one but everyone could identify it (Casciani, 2010). Britain went one step further and stopped selling the €500 notes after ‘The Serious Organised Crime Agency’ said there there was “no credible legitimate use” for notes of this size (Doyle, 2010). When vast sums of money is printed on single notes, it is so much easier to store, manage and move. In the midst of the war in the middle-east, the US army uncovered a stash of $650 million in large denomination notes in one of Saddam Hussein’s palaces (Zucchino and Rubin, 2003). Whilst criminals, money launderers and tax-evaders will always commit their crimes; these large notes enable to do so with considerable ease. Large amounts of cash make their business simple, letting them easily maintain their anonymity. During a raid on a Mexican drug dealer’s house in 2007, the authorities found $205million in large denomination cash, forcing economists to question - “whose side is the treasury on?” (Wolman, 2012). Already, we’re looking at ways to use technology to cling on to this anonymity digitally. At the forefront of this movement is the famed digital crypto-currency ‘Bitcoin’. Bitcoin uses a computer’s processing power to ‘mine’ for digital ‘coins’, of which there is a predetermined limited number (Bitcoin, 2014). This perceived scarcity alongside the difficulty to mine at any substantial rate without serious hardware investment gives the currency its value. Bitcoins as a currency are becoming increasingly widespread and at the same time increasingly accepted. However, with any currency solely based around anonymity - the link to criminal activity is clear. In 2013 the FBI raided ‘Silk Road’ (an anonymous online black market - which accepted bitcoin as the sole payment method) and that very same day, the value of Bitcoin dropped significantly (Randewich, 2013).

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Bitcoin, in theory, ticks all of the boxes we require of money - truly anonymous, untraceable, scarce and multi-national. However, its problems lie with its reputation. Google ‘Bitcoin’ and you’re faced with more news stories about people using it to buy drugs and weapons on Silk Road, than praise of the currency as a serious alternative investment. Bitcoin both mimics and enhances the secretive element of cash which we all enjoy, but for this reason governments don’t trust it. Therefore, it is highly unlikely that Bitcoin will become widespread to the point where lots of people use it in day-to-day life. In order for it to be taken seriously as a currency - it will all have to take place above board; presumably people would need to pay taxes on any Bitcoin income, which rather defeats the alluring anonymity of the currency in the first place. What the success of Bitcoin does prove though, is that the reasons we like cash can be replicated on a digital platform. If the anonymity of cash and the dishonesty it encapsulates can be replicated, there is no reason why we cannot re-create the great romance of cash on a digital platform.

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THE LEAP OF FAITH The digital switchover is not a new idea. In a 2002 report, ‘The Organisation for Economic Cooperation and Development’ outlined that “Money’s Destiny is to become digital” (Miller, Michalski and Stevens, 2001). Just as we moved from rocks to coins, to paper money to credit cards - a purely digital economy is the next step. However, that step is proving to be more of a leap. We haven’t yet reached a point where the digital switchover is upon us because humanity doesn’t yet fully trust technology. A hangover from the Y2K fears perhaps, but we still don’t like the idea of trusting a computer chip with our life savings, without the ability to physically withdraw it at any time. Strangely, although more banking errors are made by man than machine (Zaidi, 2014) we don’t fully trust computers to take over such tasks yet. It is this teething issue of trust which we have to overcome - but this is nothing new; when ATM machines were first introduced it took around 80 years for them to become part of the banking routine. Likewise, when credit cards were introduced it took more than a generation for them to go mainstream (Wolman, 2012). Man’s relationship with machine is currently a strange one because we still live with generations who remember life pre-internet, pre-computer and pre-smartphone. When those born into the modern technological world grow to take lead and become the innovators of the future, we are much more likely to take that leap of faith and a cashless future could become viable. Until then, we must settle for the less-cash switchover period, combining paper money with smartphone transfers in a system which could be likened to another technology crossover - listening to vinyl records in addition to downloading albums on a shiny new iPod. In some parts of the world, the digital switchover may not be so far away. A number of Nordic countries are rapidly on their way to becoming cashless. With only 27% of retail sales in Sweden paid in cash (a figure which would be lower if online payments were included), it is now a country which is leading the way in the digital switchover

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(Wolman, 2012). It seems these Nordic countries are leading the way when it comes to developing cashless systems; homeless sellers of ‘Situation Stockholm’ (Sweden’s answer to the ‘Big Issue’) are even now issued with card-readers by the magazine’s publisher - under an initiative by Swedish payment firm iZettle (Lampou, 2013). There is also the famous story of the bank robber who broke into a bank only to leave empty handed - he had accidentally raided a modern ‘cashless bank’! (Lampou, 2013). The Nordic countries are embracing the cashless future at a rate of knots whilst the rest of the world seemingly lag behind waiting for systems to be put in place to make the leap easier to take.

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Someone once asked Willie Sutton, the bank robber, why he robbed banks. Sutton looked a little surprised, as if he had been asked “Why does a smoker light a cigarette?” “I rob banks because that’s where the money is” he said. THE The Saturday Evening Post 18


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THE MOBILE FUTURE It has long been stated that changes in monetary systems affect those with the least money the most. For this reason, it is particularly interesting to investigate the relationship with money in some of the poorer parts of the world. In rural India, a company called ‘Eko’ allows its users to make transactions using nothing but their mobile phones. Its CEO, Abhishek Sinha, nicknames himself the “Assassin of Cash” (Wolman, 2012). After studying how people in India use their money he noticed “they spend small amounts of cash, maybe three or five times a day, commuting to work, buying a lunch, getting groceries” before explaining that “Eko is not about assassinating the transactions that have already been replaced by credit cards - we want to go after all of these small cash transactions” (Wolman, 2012). Sinha is talking about the final leap - whilst cash has been replaced (criminals aside) for almost all large transactions, it is the small transactions which digital money now needs to conquer. As Sinha sees it, mobile technology is the future of small transactions, at least in India. Why would people bother to deal with small amounts of money, carrying notes and coins when they can just use their phones to transfer a small amount of money from their bank account to their vendor’s account? It is hard to question Sinha’s logic here. In Kenya, another mobile money service - ‘M-PESA’ is quickly taking over. One thing we take for granted in the western world is that dealing with cash is actually a luxury. It is readily and freely available from an abundance of ATM machines, and we can safely carry it between them. It is those people in the poorest parts of the world who are most penalised by cash. Without access to digital money, People are vulnerable to losing everything in an instant - through a natural disaster or someone robbing a house, families can lose their entire worth when all value is stored in cash (Platoni, 2012). This is where M-PESA is the saviour. Run by a subsidiary of Vodaphone, M-PESA (loosely translated as “mobile money”) allows its customers

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to securely transfer money using a mobile phone without an internet connection (M-Pesa, 2014). To the people of Kenya, this service has changed lives drastically - instead of spending days walking to deliver money to relatives in the next village, you can go to one of the 23,000 M-PESA agents, hand over the cash you want to send and type in some codes on a mobile phone. Your relatives receive a message telling them the money has been transferred to their account, and they can go to another M-PESA agent and redeem it for cash, or alternatively safely store it in the account until a later date. When M-PESA first came to use, an anthropologist researcher found that many of its customers were actually using the service to transfer money to themselves putting some cash into their mobile account before travelling through a dangerous part of the city - only to redeem it later on (Jack and Suri, 2009). This kind of simple transaction is something many of us would take for granted, but it has changed the lives of those with little money. There are now more than 17 million users of the service in Kenya, only 6 years after its introduction. To put this in context, it took the national banks of Kenya over 100 years to reach 5 millions users. When the benefits of new technology outweigh the risks, people are more than happy to play along - just look at the success of Eko and M-PESA. People in these countries are using these services because they are more secure than cash. This can even be translated closer to home; look at the 100+ million users of PayPal safely transferring digital money. While a digital economy may not be as life changing for the western world as M-PESA, when transferring money becomes as simple and secure as sending a text message carrying cash will seem “as unreasonable as toting around a chest full of silver coins� (David Wolman, 2012).

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AFTERWORD The future is an exciting place and the possibilities for digital trade are amazing; this much is clear. Whilst reflecting on his ‘cash holiday’ and the opportunities of a cashless future, David Wolman notes that the technology which allows us to take this leap of faith must “beat cash at its own game” and give us reasons to prefer digital systems over the comforts of cash. During the early stages of the switchover we will need designers and innovators to come together and encapsulate the romantic monetary experience on the new digital platform. We need designers to become experts in the witchcraft of money and put us all under the spell which cash has so successfully held us in. We need to find ways to replicate the feeling of excitement cash instills in us; the excitement of seeing a banknote fall out of a birthday card or the childhood elation of feeling a gold coin under a pillow. It’s an exciting time to be a creative.

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REFERENCES Books Friedman, M. (1991) ‘The Island of Stone Money’ The Hoover Institution, Stanford University Jevons, W. (1875) ‘Money and the Mechanism of Exchange’ New York: D. Appleton and Co. Wolman, D. (2012) ‘The End of Money’ Da Capo Press

Conference Papers Miller R., Michalski W. & Stevens B. (2001) “The Future of Money” OECD Forum For The Future Luxembourg, 11th-13th July, Notes available at: http://www.oecd.org/futures/2727604.pdf

Interviews Bernstein, W. (2009) Interviewed by Ted O’Callahan for Yale Insights Notes available at: http://insights.som.yale.edu/insights/how-has-tradeshaped-world [Accessed January 18th 2014]

Newspaper Articles Doyle, J. (2010) “500 euro notes withdrawn over organised crime fears”, The Daily Mail, May 13 [Online] Available at: http://www.telegraph. co.uk/news/uknews/crime/7714809/500-euro-notes-withdrawn-overorganised-crime-fears.html [Accessed January 20th 2014] Lampou, A-K. (2013) “From Robbers to Vendors, Swedes Brace for Cashless Future” Jakarta Globe, December 8 [Online] Available at: http://www.thejakartaglobe.com/business/from-robbers-to-vendorsswedes-brace-for-cashless-future/ [Accessed January 18th 2014]

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Zucchino, D. & Rubin, A. (2003) “America At War: Soldiers Find $650 Million” The Orlando Sentinel, April 19 [Online] Available at: http://articles.orlandosentinel.com/2003-04-19/news/0304190356_1_ saddam-hussein-baghdad-baath [Accessed January 20th 2014]

Reports Jack, W. & Suri, T. (2009) “The Economics of M-Pesa” [Online] Available at: http://www.mit.edu/~tavneet/M-PESA.pdf [Accessed January 20th 2014] The Payments Council (2010) “The Way We Pay” [Online] Available at: http://www.paymentscouncil.org.uk/files/payments_council/the_way_ we_pay_2010_final.pdf [Accessed January 19th 2014]

Websites Bitcoin (2013) “Open source P2P money” Available at: http://bitcoin. org/en/ [Accessed 14th December 2013] Casciani, D. (2010) “500 Euro Note - Why Criminals Love It So” Available at: http://news.bbc.co.uk/1/hi/8678979.stm [Accessed January 18th 2014] De La Rue (2013) “Banknote Production” Available at: http://www. delarue.com/ProductsSolutions/BanknoteProduction/ 2013 [Accessed January 20th 2014] European Central Bank (2010) “Circulation of Euro Banknotes” Available at: http://www.ecb.europa.eu/euro/banknotes/circulation/ html/index.en.html [Accessed January 19th 2014] Investopedia (2014) “Fungibility” Available at: http://www. investopedia.com/terms/f/fungibility.asp [Accessed January 18th 2014]

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M-PESA (2014) “What is M-Pesa?” Available at: http://www.mpesa.in/ [Accessed January 20th 2014] Platoni, K. (2012) “Time to cash out?” Available at: http://alumni. stanford.edu/get/page/magazine/article/?article_id=55994 [Accessed January 18th 2014] Provost, D. (2009) “The Russians Used A Pencil” Available at: http:// therussiansusedapencil.com/post/175863624/the-pencil [Accessed January 19th 2014] Randewich, N. (2013) “Bitcoin sinks in value after FBI busts Silk Road drug market” Available at: http://www.reuters.com/article/2013/10/02/ net-us-crime-silkroad-bitcoin-idUSBRE99113A20131002 [Accessed January 20th 2014] Zaidi, S. (2014) “Why Brains Make Mistakes Computers Don’t" Available at: http://thedailyneuron.com/why-brains-make-mistakescomputers-dont/ [Accessed January 19th 2014]

Images Page 2 “Money” Image Taken From: http://farm9.staticflickr. com/8106/8463683689_23d1da43d6_k.jpg [Accessed February 3rd 2014] Page 3 “Yap Stone Money” Image Taken From: http://farm5.staticflickr. com/4110/5200158969_27471d8183_o.jpg [Accessed February 3rd 2014] Page 6 “Microprinting” Image Taken From: http://farm1.staticflickr. com/120/302452858_0ef9ae17f0_o.jpg [Accessed February 3rd 2014]

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Page 10 “Dollar Origami” Image Taken From: http://farm3.staticflickr. com/2237/3541823809_22f12d41a2_o.jpg [Accessed February 3rd 2014] Page 11 “500 Euros” Image Taken From: http://farm4.staticflickr. com/3079/2643598963_e5671a61a7_o.jpg [Accessed February 3rd 2014] Page 14 “Bitcoin Coins” Image Taken From: http://farm8.staticflickr. com/7392/10307546963_f0c174d88c_k.jpg [Accessed February 3rd 2014] Page 15 “iZettle” Image Taken From: http://farm8.staticflickr. com/7025/6521999691_e6ed607d6c_o.jpg [Accessed February 3rd 2014] Page 19 “M-Pesa Mobile Money” Image Taken From: http://farm4. staticflickr.com/3067/2620808649_f2890c5107_o.jpg [Accessed February 3rd 2014] Page 22 “M-Pesa Shop” Image Taken From:http://farm8.staticflickr.co m/7058/6794107722_063a2980ea_o.jpg [Accessed February 3rd 2014] Page X “Money 2” Image Taken From: http://farm9.staticflickr.com/85 15/8474532085_02a9566eac_k.jpg [Accessed February 3rd 2014] ALL IMAGES ARE COPIED UNDER A CREATIVE COMMONS Attribution 4.0 International LICENSE

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Money, in its many different forms, has been a constant throughout history. As a species, we have been trading with metal coins since 700 BC and paper money since the 13th Century. In 1950, the first credit card was released. By 1995, over 90% of transactions in the United States were made electronically. Money is literally an expression of value; a tool to quantify worth. When you think in these terms, the possibilities become vast. Money has always been something physical; something you could hold and touch. But as children born in the digital age grow up and become leaders and innovative thinkers, increasingly money isn’t something tangible, but something digital and invisible. So, what is the next step for money? Will we continue to cling on to a cash-based currency? Will digital currencies take hold? Where are we now, and where are we headed?

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Irritatingly Analog - The Digital Switchover of Money