The Royal Canadian Mint just announced it is creating its own digital currency.
The project is being called MintChip.
It seems the development of this digital currency is beyond the planning stages, it is well underway. The Canadian Mint is currently running a contest for software developers to spur the development of applications that use the currency (here’s the video announcing the challenge) with over $50,000 in prizes. The 500 contest slots were filled in four days.
What is a Digital Currency?
Let’s be clear. The MintChip project isn’t a new currency.
It’s a digital version of the Canadian dollar. If they wanted to create a new digital currency, the best choice would be a digital Canadian Maple Leaf, a currency backed by gold.
However, even if it isn’t a new currency, it can still be a digital currency. How?
A digital currency that makes it possible to transact in a similar way you use cash, both online and wirelessly. What makes it different from the other types of digital transactions we have today is that a digital currency allows:
- Person to Person transactions without going through intermediaries. Phone to phone. Browser to browser. Currently that isn’t possible without going through an intermediary.
- Costless transactions. This makes extremely small transactions possible. It’s costless since there isn’t a need for an intermediary. NOTE: It’s important to remember that unlike a private business, the Royal Canadian Mint isn’t in the business of taking a slice of every transaction. They are funded to support Canadian commerce by making transactions as easy as possible.
- Anonymous transactions, like cash, to protect privacy.
How does the system work?
You purchase a MintChip from a vendor. It’s likely something that looks like a thumbnail USB or equivalent. You then plug the chip into the device you want to use. A laptop or cell phone.
Here’s how you use the MintChip:
- You can load your chip with Canadian dollars from your bank’s ATM or Web site.
- You can then use the device to buy things online or wirelessly from retailers and other vendors.
- You can also transfer funds between individuals who also have chips.
What Could or Will Go Wrong?
While the potential of a digital currency is exciting, there are lots of pitfalls that have tanked digital currencies in the past. These include:
Eavesdropping. Users are forced to use a MintChip with a unique ID or the chip phones home (the government) with the details of every transaction. Why would this happen? The government trots out usual legal canards of terrorism, pedophilia, and tax evasion to make the case that nobody should transact anonymously.
Hackers might break the encryption on the chip earlier than anticipated. This hack will happen (inevitably), as it does with all systems. However, a major hack early in the currency’s lifespan could make the system look unsafe.
Finally, there is a chance that many other governments might make use of this digital currency illegal for their citizens.
What Does This Mean?
Over the longer term, it’s inevitable that we will see true digital currencies. The fact that the Royal Canadian Mint is exploring it is a good sign that it will happen sooner than later.
At the global level, I’m not sure anybody realizes the incredible amount of pent up demand there is for a safe digital currency. Imagine what would happen if a TRUE digital currency emerged from a government like Singapore or Switzerland? A currency like that could become one of the world’s top currencies in a few short years. That’s an incredible opportunity for the first safe and stable government ready to grab it.
In our personal lives, a true digital currency would allow us a degree of freedom over our finances that we haven’t had for decades. If it was backed by gold or at least a sound government, we could sleep easier knowing that the wealth we have stored in it is safe. It would also allow us to store the currency locally, on the chip, which would reduce the risk of bank failure.
Let’s hope the Canadian’s, or some other source, is successful sooner than later.