Here is some stuff I know, the money and banking edition:
• The idea of a virtual currency, one that takes no physical form as coin or paper, is hardly new, contrary to what the advocates of Bitcoin and its ilk may tell you.
Most of us have been living in a virtual-currency world for years. Our paychecks rarely come in the form of even a paper check (never mind a pay envelope with money in it), and it’s even more rare that those checks are converted into physical currency. More commonly the amount we’ve earned is deposited electronically in a bank account, from which payments can be dispensed in the same fashion. Many of our financial transactions, even the small routine ones, are handled with credit and debit cards (paid off electronically), and more are being done with wireless payments dispensed from a mobile device.
Nor is the use of a currency that is neither issued nor controlled by some governmental entity like a central bank all that novel. The frequent-flier miles that the airline issues you, the frequent-purchaser credits that the local coffee shop keeps track of, those are both forms of currency, in that they represent a store of value that can be used for purchases of goods and services (albeit in limited circumstances — try cashing in your accumulated latte credits on a flight to Hawaii; then again, the same holds true for physical currency — try spending Argentinian pesos at your local hardware store).
But Bitcoin proponents have been unshy about proclaiming their form of virtual currency as not just new and different but better — free from the control and manipulation of central banks and their sponsoring governments, secure, protective of privacy, designed to reduce transaction costs, a true alternative to conventional currencies.
Some of the claims seemed spurious at the outset. Cash money is as untraceable as a Bitcoin, or have we learned nothing from all those movies in which illicit drug and weapons deals are concluded with the exchange of a silver-sided briefcase containing neatly wrapped and stacked piles of paper currency (usually U.S. dollars)?
And unless you live in a hermetically sealed economy in which Bitcoin is the only currency and is universally accepted, transaction costs and hassles are unavoidable. Traditional currencies interact when buyer and seller agree on the value of what they’re exchanging, which may be represented as a currency value or may involve the currency itself. You can make all the claims you want for what you think your Bitcoins are worth, but if I don’t agree with your estimation, then you ain’t getting what I’m selling, and all you’re left with is a virtual handful of digital dust.
Which gets us to the items of being free from governmental influence and security. While there is a lot to not like about central banks and their behaviors (manipulating and inflating the currency), at least there’s some identifiable entity behind them.
Not so with Bitcoin. If you’re still having trouble wrapping your head around the descriptions of how Bitcoins are produced or “mined” — by solving complex algorithms is the usual shorthand — join the club. What algorithms? Like really intricate story problems (“If a train leaves Spokane at 3 p.m. headed west at 35 miles per hour, and a plane leaves Sea-Tac at noon headed eastbound at 350 miles per hour, how much liquid will it take to half-fill a container whose circumference is 50 centimeters at its base, tapering to a point that is 12 feet, eight inches high, adjusting for altitude, temperature and the Mariner’s cumulative batting average for the last nine years?”)
And the events of the last week, including hacker attacks and the closing of a Bitcoin exchange, suggests the “secure” part of the argument may need to be reworked. There is some delicious irony in seeing Bitcoin investors seeking government help in recovering their potentially lost money. Umm, what part of “unregulated” wasn’t clear to you? That, you told us, was a feature, not a bug.
The reason for discussing the topic at this length is that Bitcoin may survive and grow or be relegated to the status of historical curiosity, but the concept of virtual currency is forever with us. Bitcoin does have one universal use — as a reminder that it does matter who has our money and where it is, even if our “money” is stored on a server halfway around the world rather than in a vault or our wallets.
• Back in the realm of physical banks, a reader picked up on last week’s discussion of the combination of retailing and financial services to point out that there was a time when Fred Meyer, the specific retailer in question, was once far more involved in banking.
Indeed it was, as subsequent query into this fascinating bit of banking lore reveals. There was an actual Fred Meyer Savings & Loan, one which the company owned and whose branches were in the stores. The idea was to offer another draw to get customers into the store; one online history says the bank awarded such premiums as loaves of bread and steaks to those opening accounts.
The retailer sold the S&L in the early 1980s, in the wake of one of the banking industry’s periodic crises. But with Fred Meyer making a renewed promotional push into marketing financial services, it serves as one more reminder (as with the first item in this column) that no matter how many coats of promotional paint you slap on it, there’s really very little new in banking. All right, drive-through lanes, ATMs, online banking, those were pretty good. But what have you done for us lately?
Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at email@example.com.