Cashless society has been an ideal and a mantra for cryptocurrency promoters for more than a decade. Those who believe that crypto is the future talk about freedom of financial assets, anonymity and security that is unpar to everything we have known so far. But it seems that for every pro-crypto spokesman, there are ten of those who take a more cynical approach to the matter. So is cashless, crypto-based society really something we can expect or is it just a dreamer’s utopia?
Cashless system is not a thing of the far future. In fact, Sweden is already in the process of removing cash payments completely. If you go visit this fantastic country, you might start scratching your head the very moment you step off the plane. Everywhere from taxis, retail shops, street vendors and even churches cards are preferred over cash.
The cash-free mentality even goes so far that the government allowed merchants and sellers to straight up refuse cash as a payment method! If you see a place you’d like to shop at and there’s a sign saying “Vi hanterar ej kontanter” (“We don’t accept cash”), you better have a card ready.
While most Swedes are happy to forget the cash transactions, the government and the Central Bank of Sweden (Riksbank) have a new problem to tackle with. The new, digital currency needs to be introduced if the system is to remain stable, and this is no small task. This new digital payment system is a wonderful concept or a possible path to demize, depending on who you ask. Much like the cashless crypto future.
Scenario 1: Cashless society using fiat currencies
For the sake of this thought experiment, we will take Sweden as an example. Cash is virtually nonexistent in everyday life of Swedes. The amount of cash used in transactions was around 1% of Swedish GDP (meaning that, out of all the transactions made, only one percent was made by paying in cash) in 2018. By the end of 2020 this number is estimated to drop to 0.5%.
Swedes have a very peculiar mentality. Multiple researches showed that on average, Swedes are very accepting of technological advancements, trust their government to keep the citizen’s best interests a priority and believe their country is stable and prosperous. All of these factors have contributed to the ever-growing trend of using digital transactions as a preferred way of payment.
Sweden’s own digital wallet is called “Swish” and it enables instant transfers of funds between the sender and the receiver. Mobile payments can be actualized between individuals, commerces and companies. All that is needed is an app and a phone number. The transactions don’t depend on the users’ bank and don’t need anything but the existing bank account. Swish is an elegant and intuitive mobile wallet indeed.
In the light of the developing situation, Swedish government decided it’s time to introduce a new, all digital currency called E-krona. This currency is to completely replace paper money and become an official currency of the country. One might ask:”Why introduce something new to the system that already runs smoothly?” Answering this question requires at least a basic understanding of economy and monetary value, and a little bit of history.
In the 19th century Sweden was one of the countries that had a system where both central bank and privately owned banks could issue banknotes. This system works fine as long as the money created by private banks can be converted to central bank money.
Today, the system functions in a similar manner but with electronic money. Private banks can issue electronic money that is guaranteed to have value in central bank money, which is actually cash. If there is no cash to work with, how can the government guarantee the value of citizens’ assets?
Another reason for introducing a government-issued digital currency is possible financial unease. If the time comes when trust in the bank system is compromised, people rush to withdraw their assets (in cash) and keep them secure – it’s what we popularly call a “bank run”. Transferring electronic money from one bank to another doesn’t bring much security in such a scenario.
The third reason that is probably the biggest concern of the Swedish government, is the fact that Sweden doesn’t have a domestic card payment method. A country this progressive and stable doesn’t like the idea of being dependent on foreign factors. Furthermore, if cash disappeared the entirety of Swedish monetary infrastructure would be privately owned.
To quote Stefan Ingves, the governor of the Swedish central bank: “The e-krona can fulfil the same function as cash has traditionally held”.
Pros and cons
Introducing e-krona means that the government-issued currency will replace electronic and paper money 1 for 1. Since the vast majority of the Swedish society already uses digital banking and mobile payments, a carefully conducted transition should be seamless.
The new digital currency would be, as we have already stated, completely controlled by the government. People with privacy concerns are not thrilled about this. In short, this means that every transaction is traceable by the authorities.
In the second report about the e-krona project, it was confirmed that both account-based and value-based e-krona will be traceable to the fullest. Surely this means that government can react swiftly in case of illegal activities. But human nature is fickle and we always seem to find a way to beat the system. Simply put, thinking that this type of “Big Brother”-like supervision can stop crime once and for all, is simply naive.
While the majority of the Swedes don’t feel like their government would abuse such power, we should look at a broader picture. If digital currencies become a wide-spread phenomenon (judging by the cashless trends, Australia, Singapore, the Netherlands and France will be the first to follow Sweden) there is room for abuse of horrific proportions.
Scenario 2: Cashless society using cryptocurrencies
Blockchain and cryptocurrencies which rely on blockchain technology are a concept completely different from our current economic standards. Understanding how it all works is no small endeavour, but you don’t need to have a deep knowledge of cryptography and coding to understand the core differences between crypto and fiat currencies.
|Value||Supply and demand||Regulated (to some extent)|
|Transparency||Full||At bank’s/ government’s discretion|
|Anonymity||Full||None for electronic money, partial to full for cash|
|Availability||Everywhere||Limited by country|
|Transaction time||Instant||Several days or more|
Some of the concepts mentioned above are intuitively understandable, others need some clarification. Decentralization of the cryptocurrencies (using the peer-to-peer network) means that there is no specific location, physical or virtual (like a server or a vault) where crypto is stored or through which transactions are made. This means that the system is much more resistant to attacks.
Another security prop of this system is the strength of the encrypted ledgers. Furthermore, distributed digital ledgers are a great way to guarantee security and disables double spending, which is still a great concern with certain methods of payment with fiat currencies.
No one can control the transactions or the value of crypto by declaring this or that. Another product of a decentralized network is that all details of every transaction that has ever happened is visible to everyone, or in other words, transparent.
Transactions between sender and receiver of crypto are virtually instant (excluding the grace period during which a transaction can be cancelled). Also, the transactions can, if the user desires so, be completely anonymous. This brings great freedom to users, but it also brought a bad reputation to cryptocurrencies.
Pros and cons
Using cryptocurrencies in a futuristic cashless society promises a lot of enticing benefits. Everyone can choose whether or not to reveal their identity. Transaction fees across borders and to distant destinations will become a non-issue. The very way we see the economy today will become obsolete because blockchain and, consequently, cryptocurrencies, follow a much more flexible and natural set of financial rules.
However, everything that was stated above is also the drawback of crypto. This is why this currency, although already widely accepted as a payment method, still hasn’t gained expected momentum.
First and foremost, people do not understand how it all works. “Obscurity” of the mechanism makes people wary and unaccepting. On the other side, it is worth noting that there is only a miniscule percentage of people who truly understand the global economy and trade. Yet, everyone has the confidence to discuss investment and spend money.
Another big obstacle in the way of everyday usage is irreversibility of transactions. If something went wrong, the only thing to do is rely on the honesty of the recipient and ask for a refund. This, as we all know, isn’t ideal.
The bad moral reputation that follows cryptocurrency is also a huge drawback and it’s hard to convince people otherwise. Many people have heard about crypto being used as an anonymous way to pay for questionable merchandise and services over the dark or not-so-dark web. Unfortunately, this is where the conversation about crypto usually stops.
Cashless society is much closer than you think. Sweden is already there, fine tuning the process and releasing tests in small increments. A lot of Asian and European countries are soon to follow, as the transitions are estimated to start as early as 2030. It is not a question of if, it is a question of when.
The real question is which way is it going to roll. There is no doubt that laws and restrictions will vary from country to country, which can bring a lot of concerns about oppression exercised to the fullest potential. This, of course, goes only for the fiat currency related digital assets.
When it comes to cryptocurrencies, there is little possibility that any government would adapt it as an official payment method any time soon. Government is central authority – something blockchain stubbornly defies.
However, it is possible that a cashless society will evolve in such a way that digital fiat and crypto currencies will coexist, intertwine and supplement each other. Even today, financial services and payment gateways support both payment methods and even offer mutual exchange.
The ultimate advice here is – don’t put all your eggs in one basket. Crypto might be implemented a bit slower than expected, but it’s definitely here to stay. Fiat currencies are not going anywhere either, just evolving with our needs.