Work, transportation, medicine, shopping, entertainment – digital technologies impact all of these and just about every other aspect of our lives. In recent years, people’s approach to physical money has also been changing. Cash is no longer king. Whether we like it or not, a wallet bulging with cash is becoming a thing of the past. Power has passed to electronic transactions, Internet transfers, virtual money transactions, payment cards and virtual wallets. The world is moving ever closer to becoming a cashless society.
However, the growing dominance of commercial chains and the elimination of cash transactions is giving state governments, supervisory institutions and tax authorities the ability to monitor our transaction and purchase histories, as well as to follow our buying preferences, and shopping patterns and habits. They are gaining greater control and eliminating the gray market.
The key pillars of a cashless society are systems, tools, platforms and legal regulations. These make it possible to digitize the circulation of goods, services and money. Despite continuing advances in the level of sophistication of various forms of cashless exchange, the biggest barriers today to a cashless society are the major financial institutions. The reason is simple – modern means of exchange undermine their status. In the future, the importance of today’s major financial institutions may be substantially reduced, or even marginalized.
When it launched the first credit card in 1958, little did the leaders of Bank of America know they had sparked a revolution that would wipe out paper checks, which at the time accounted for 80% of financial transactions. Similarly, when opening the first automated teller machine in 1971, MasterCard had no inkling it was establishing a new channel for customer relations that would eventually allow people to use banking services without visiting bank branches. Later, text messages in cellular phones gave rise to mobile banking, which – thanks to the WAP technology in smartphones – has grown into the mobile banking we know today. However, each of these innovations was developed either by financial institutions themselves or with their direct involvement.
2008 was the year blockchain was born. At its heart, the blockchain technology is a means for maintaining a shared collective ledger of transactions concluded between computers. The digital ledger is dispersed across the entire web in identical copies. Open to all, it is nevertheless fully secured with advanced cryptography. Users are only allowed to access their own transactions.
Then came bitcoin, a truly digital currency. Suddenly, it became clear that commercial exchanges, settlements and money flows could all proceed safely without the help of the existing financial system. Their role could be assumed by public channels, the Internet, generally available shared transaction ledgers and blockchain-based transaction authentication systems. Bitcoin is an electronic currency, a cryptocurrency. Having bitcoin data recorded in a chain of blocks prevents the duplication of even a single bitcoin. All transactions are public, and their entire history is available for viewing and verification. The blockchains that serve as transaction ledgers cannot be counterfeited due to a cap placed on the number of bitcoins and protections that prevent their number from ever exceeding a predetermined ceiling. The transactions recorded in a blockchain are also irreversible…..