By Tristin Hopper and John Greenwood
With the penny gone and the triumph of plastic over paper bills only months away, the research and development department of the Royal Canadian Mint has proposed going one step further: the death of hard currency altogether.
Last week, the Mint announced the release of MintChip, a completely digital currency. “Money, as we know it, is fine for today, but tomorrow is a different story,” says an introductory MintChip video. “MintChip is better than cash, since you can use it online.”
MintChip stores value in a physical chip, and transfers money between chips using heavily encrypted “value messages.” The system has no centralized database. “They’re calling it anonymous … their intention is that it’s no more associated with who you are than [traditional] currency,” said Jacqueline Chilton with Glenbrook Partners, a California-based payment consultant.
Of course, Ms. Chilton noted there is still the possibility for MintChip-specific apps to covertly record transactions. And, just like physical currency, if “you drop it, it’s gone,” she said.
MintChip can handle any amount of money, but the Mint envisions it as a way to digitize small transactions, like bus fare, a song download or a stick of gum.
“The emerging digital economy must be able to accommodate small-value transactions, such as micro transactions (under $10) and nano-transactions (under $1),” said the Mint.
On April 5, the Mint launched the “MintChip challenge” to encourage software developers to come up with creative applications for the technology. The winners, to be selected by a judge’s panel including Mint CEO Ian Bennett and Google’s vice-president of payments, will be awarded the tongue-in-cheek prize of $50,000 in gold, one of the world’s oldest forms of currency.
MintChip’s technology — and even its name — is modelled closely on Bitcoin, an electronic cash system launched in 2009. The currency became the darling of hipsters, libertarians and criminals, all of whom liked the idea of using cash not controlled by a government or central bank. In the words of one Bitcoin enthusiast, the service “is not run by people with hot sexual appetites for hotel maids. It is not run by corporations.”
Nevertheless, Bitcoin is prone to wild fluctuations in value, particularly after last June when hackers successfully brought down the world’s largest BitCoin exchange.
On the eve of MintChip’s launch, Marc Brûlé, the Mint’s chief financial officer, went on record denouncing Bitcoin as being constantly on the verge of collapse. “Bitcoin may work for the small group of people that believe in its value, but that could change very suddenly,” he told Reuters. Mr. Brûlé had just returned from a speaking engagement at Digital Money Forum, a U.K.-based gathering of electronic cash developers and consultants capped off with a few rounds of debit-card Monopoly.
The entrance of a government player into the frontier of electronic cash is surprising, particularly for Canada, which is notorious for lagging in the currency department.
“Canadians continue to use an outdated payment system not necessarily because they prefer it, but because no viable alternative has been priced and promoted in a way that makes it attractive to use,” said a December federal task force report lambasting the Canadian Payment System.
Devoid of innovation, the system is in danger of being left behind by the European Union and developing countries, reads the report, which was commissioned by Finance Minister Jim Flaherty.
Plastic bills, which the Bank of Canada introduced only five months ago, has been in Australian circulation for nearly 25 years. In Sweden, arguably the world’s most cashless economy, public transit and even some banks have completely phased out coins and bills.
In a recent post, Bitcoin Magazine writer Vitalik Buterin called MintChip “a sign of things to come.” Nevertheless, he questioned MintChip’s security, noting that “unhackable” chips had been hacked in the past with electron microscopes, needles and acid. “Such systems are nothing new, and time has shown them, like all other forms of digital rights management, to be far too insecure to build an economy around,” wrote Mr. Buterin.
“The Mint isn’t saying they’re creating a substitute for cash tomorrow — but something that can be used as such in pieces overtime,” said Ms. Chilton. “It probably isn’t for our grandparents, it might not even be for us, it might be for our children.”
National Post, with files from Reuters
http://news.nationalpost.com/2012/04/09/mintchip-royal-canadian-mint/