Can cryptocurrencies save cash?

We are currently witnessing the death of cash. All around the world, the share of cash-based payments is decreasing. Instead, we are seeing a shift to digital and mobile payments. So what? After all, there are good reasons to shift to cash.

From a consumer perspective, having to carry cash around can be a burden and banks often charge customers for withdrawing it from ATMs. For businesses, cash handling is equally expensive. Cash payments take more time at the counter, and employees are more prone to make mistakes when counting and returning change. Not to mention, cash needs to be picked up at the end of every day by specialized security companies who charge for that service.

Governments, on the other hand, have an interest in seeing digital payments take over as they reduce the possibility for businesses to evade taxes and launder money. Lastly, as the recent events around the coronavirus pandemic have shown, governments consider cash to be unhygienic. Notably, China and South Korea have taken cash out of circulation and burnt it.

Seems like everybody is happy, no? The problem is that along with cash dies financial anonymity.

Every form of digital payment requires a middleman — a credit card company, PayPal, or some other company — which knows your identity and keeps a record of your transactions on its servers. It’s becoming increasingly apparent that this financial data is immensely valuable as it can be used to understand people’s purchasing behavior. The big tech companies have understood this better than anyone.

But privacy is only one concern. Censorship-resistance is another. The issue with centralized payment providers like PayPal or your bank is that the money that you hold in your account is just a number in their database. Companies holding that money on your behalf can seize or freeze that money arbitrarily or as a result of government pressure. Though there might be a good reason for it every now and then, for the most part, this is not the case.

Governments don’t always act in the best interest of their citizens and the easiest way to suppress citizens is to cut them off financially. In 2010, PayPal and Visa froze the accounts of whistleblower platform Wikileaks by request of the US government and banned them from receiving further donations. In Hong Kong, donation accounts of the Hong Kong activists were seized in a similar fashion after pressure from the Chinese government. This list of examples could go on and on.

Cryptocurrencies like Bitcoin or Ether are a radically new form of money. In short, they are currencies that are completely electronic, live on peer-to-peer networks that anyone can connect to, that isn’t controlled and can’t be controlled by any single entity. Contrary to fiat money issued by governments and their monetary policy, bitcoins are not created out of thin air but by miners all over the world who provide computing power to the network to validate the transactions that are broadcasted to the network.

In other words, these networks are not run by private entities like Visa or Mastercard but by a global network of computers (much like the Internet). These computers don’t enforce moral codes, they just check that payments are valid and execute them accordingly. This means that users can send their money to wherever they want; a game-changer for citizens in oppressed countries like Iran or Venezuela.

That said, there are plenty of options to sell and buy cryptocurrency in more private ways. In fact, the Human Rights Foundation has published a guide on how to use cryptocurrency privately for journalists and activists under surveillance by authoritarian governments.

While it is tempting to only focus on the opportunities cryptocurrencies present to criminals, it’s more important to focus on what it represents for law-abiding citizens that make up the vast majority of society. Electronic cash and financial sovereignty are essential to sustaining a liberal open society.

While it’s reassuring that some countries work on alternatives we need to keep in mind that not all governments have the best interest of their citizens in mind. Cryptocurrency is the best way to provide an alternative to citizens of these countries.

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