In this post, I’m going to be loving on Amazon Payments quite a bit, so I’m just gonna put my disclaimer right up front here.

The other day I sold a coworker a used video game. The game, Alpha Protocol, was fun, but I definitely wasn’t going to play through it a second time. We chatted via email, agreed on a price, and I went by her desk to deliver the game. She’d stepped away, so I just left it on her desk.

A few minutes later, she paid me via text message. Or, to be more precise, she sent a message to Amazon Payments who transferred $14.00 from her account to mine. But still, the transaction involved no more effort than sending an SMS.

As I am inordinately fond of saying: “Welcome to the Future.”

This got me thinking about the future of money. Or more precisely, the future of deferred barter, a problem to which coinage and other money is one (very efficient) solution. All modern money is, at some level, fictitious. Or, to be more generous, it’s built much more heavily on interpersonal trust than is metal coinage. Or, to quote Niall Ferguson: “Money is not metal. It is trust inscribed.”

In essence, my coworker and I bartered. I gave her a physical good and in return she gave me some of her stock of bartering power. That this bartering power didn’t come in the form of a corresponding physical good is interesting, but fundamentally unimportant. After all, as long as I can add that bit of bartering power to my own store and reasonably expect to use it in the future, then it doesn’t matter if this bit of bartering power comes in dollar bills, dinars, Whuffie, or Cheerios box tops.

So ostensibly, I got fourteen US Dollars from my coworker. In reality, Amazon just took a notional stack of USD$14 from her bank account and notified me that they would give me USD$14 worth of goods or transfer that notional stack of money to my bank account. This transaction works because I trust Amazon, my coworker, and our respective banks to a.) keep their promises regarding these purely notional sums of bartering power and b.) all mean the same type and magnitude of bartering power when they talk about USD$14.

In a sense, physical currency itself is becoming less useful than its various abstractions. I have a bank card linked to the sum total of my currently usable cash bartering power. It’s more flexible, more secure, and more portable than carrying around actual physical monetary tokens. In that sense, my bank card is semi-virtual. It’s a physical item used to shuffle around virtual currency. (These days I can even pay some individuals via bank card. How long until, e. g., panhandlers start taking all major credit cards?)

Where services like Amazon Payments come in is by taking the whole transaction system pure-virtual. The bank card is replaced with an SMS message. This has the potential to liberate us from a lot of the drawbacks inherent in virtual currency, such as bulk, risk of physical loss, counterfeiting, shipping and printing overhead, etc.

But these systems are still tied to the physical world by the fact that they still express bartering power in terms of extant physical currency. My Amazon payments are still denoted in American dollars and, while converting amongst currencies has gotten fairly seamless these days, it’s still pegged to a nominally physical currency.

Consider: I never see or touch the majority of dollars I use. They’re purely virtual tokens which never cross my palm. And yet, they’re still tied to a currency controlled by people who continue to mint pennies, despite each penny costing more than one cent to make.

Enter pure-virtual currencies, like BitCoin. BitCoin is an open-source currency that exists purely in the virtual world. There are not, will not, cannot be any physical BitCoins. Its rate of inflation is fixed at the code level. The integrity of the monetary system is distributed across a peer-to-peer network, and all transactions are verified by members of that network. It’s a purely abstracted system for tracking deferred barter tokens. The whole monetary system is laid bare for everyone to observe and verify.

It’s not too much of a stretch to imagine the wide adoption of a virtual currency like BitCoin running on top of a virtual monetary infrastructure like Amazon Payments. It would be quick, efficient, robust, and transparent. In short, it would increase both efficiency, which is the reason we have money in the first place, and trust, which is the reason that money even works.

Disclosure Notice