Some economists believe we are making strides toward becoming a cashless society. But taking the wider view, the role of cash is changing as new kinds of cryptocurrencies such as bitcoin and Ethereum are becoming more popular, offering consumers more choices in terms of credit and payments. Whether cash continues to be king will hinge on the perception of cybersecurity and how it evolves with these alternative currencies.
Becoming a Cashless Society
Certainly, the new currencies have already captured some significant market share. There is about $20 billion in bitcoin already in circulation, and another $1 billion in Ethereum. The main appeal of these digital currencies is their use of a distributed ledger called blockchain. Since these currencies operate on distributed networks, cybercriminals cannot find a single point of failure to exploit. Additionally, Ethereum uses a full programming language as opposed to bitcoin’s simple scripting language, which enables it to support smart contracts.
Ironically, major banks are some of the biggest supporters of these cryptocurrencies. According to The New York Times, “an invention aimed at dethroning central banks and making it harder for money to be tracked instead ends up empowering those central banks and making money more easily traceable. This would provide multiple backups if the central bank’s computers came under attack.”
But despite these initial gains and advantages, cryptocurrencies are showing some early teething issues, mainly related to data security.
The concern mirrors what is happening on traditional payment networks, with numerous large-scale breaches reported over the past couple of years. “We must keep pace with the rapidly evolving and expanding risks that threaten the payments ecosystem,” Kansas City Federal Reserve president Esther George said at a recent conference, according to Reuters. The Federal Reserve is considering new systems aimed at reducing these risks next year.
Transparency Trumps Security
Over the summer, a massive heist of more than $75 million in Ethereum caused the company’s developers to reprogram and beef up its security features. Then, earlier this fall, the network suffered a distributed denial-of-service (DDoS) exploit that stalled all transactions for several days.
Additionally, cybercriminals stole bitcoins from a Hong Kong exchange this summer and compromised a major bitcoin mining operation last year. These events chipped away at the public’s confidence in the alternative currencies, driving many back toward cash and more traditional instruments of exchange.
However, banks like the new currencies because of the inherent traceability of the blockchain, which makes rogue actors and other swindlers easier to spot. They are also interested in the blockchain because it can quickly make transactions clear — one of the arguments for moving more payments to cashless options.
The debate over the virtues and vices of moving to an entirely cashless society will continue for years to come, but becoming cashless is no longer a simple choice. Cybersecurity and risk management will be a necessary and pivotal part of that discussion.