pre-existing superior digital cash systems. No, the fact that better digital cash systems were invented in the 90s points at the fact that there are specific reasons why they haven’t taken off, and that it’s not to do with technology.
Put simply, the adoption of digital cash is limited because of economic problems, not technical ones.
The first problem is that digital cash isn’t in the consumer’s interest. It’s more complicated to deal with than a credit card, and doesn’t give you any of the associated benefits (cash back, reward points, extended warranties, ability to get the card company to make a seller take back a faulty item, and so on). In addition, in the case of Bitcoin, you’re out of luck if your money gets stolen — which is currently becoming increasingly likely. DigiCash was a lot more resistant to theft and fraud, but it still didn’t seem a compelling value proposition to consumers, even though it was launched in the middle of the .com boom.
The second problem is that digital cash isn’t in the store’s interest. They love being able to track purchasers by credit card number or check account number. Many stores go to the extra step of having loyalty cards, so they can track you even if you pay with cash. So the anonymity of digital cash is a minus to retailers. There’s also a technological issue — US stores don’t even have NFC deployed widely yet, as I’ve discovered by trying to use my phone to pay for stuff digitally. (Here in Austin, Texas, H-E-B has NFC terminals, but they deliberately turn the digital payment functionality off!)
Problem number three: Digital cash isn’t in the bank’s interest, again because of the anonymity. Your credit card account is a rich data source the bank mines in order to sell you add-on services or other bank products. Banks also make a lot of money from the transaction fees that people would be able to sidestep if there was a global digital currency.
Finally, digital cash isn’t in any government’s interest, because it makes it a hell of a lot harder to control the economy, control money flow, catch drug dealers, and audit people’s tax returns. No government is ever going to voluntarily recognize secure anonymous digital cash.
I haven’t seen any proposals that would even begin to deal with (or sidestep) all the economic disincentives I’ve just listed, for Bitcoin or any other cryptocurrency. I suspect that’s because the people who are into Bitcoin are computer programmers, and computer programmers tend to blindly see everything as a technological problem, and dismiss economics as a pseudo-science that has nothing to say about the real world.
Notice that the situations where you see Bitcoin actually being used for commerce are exactly those where it has economic benefits — situations where everyone involved has a compelling desire to want everything to remain anonymous. You know, sale of illegal drugs, procurement of assassinations, that kind of thing.
So all in all — and speaking as someone who met David Chaum and had brochures about DigiCash and loved the idea and has therefore seen it all before — I rate the chances of Bitcoin going mainstream as zero. It’s a fad and a speculative bubble. Of course, you can still make some money off of it, but don’t stay in it for the long haul expecting to gain.
© mathew 2017