Reading further into the announcements we get down to the the brass tacks. Starbucks has no intention of accepting Bitcoin at retail point of sales (and nor, I imagine, does any other Main Street retailer). Starbucks said that they will play a “pivotal role” is developing applications “for consumers to convert their digital assets into US dollars”. Note the specifics: to convert cryptocurrencies into US dollars. What was actually being announced was, essentially, a plan to find a way of loading Starbucks wallets from Bitcoin accounts.
In other words, the conversion from Bitcoin into Starbucks private currency. Bitcoin to Starbucks Stablecoin, if you like, since Starbucks guarantees to redeem their private dollars at par with US dollars, so long as your redeeming them in order to buy coffee or a variety of other soft drinks, bottled waters and snacks.
Now, earlier in the year Jeremy Light, who knows what he is talking about, made the evolution of retailer wallets central to his predictions for change in the payment sector this year. He said that these wallets – for both online and in-store purchases, where I expect to see convergence – will spread “emulating the success of Starbucks and Walmart” by focusing on slick checkout. I think Jeremy is right about this and that’s what makes the Starbuck announcement mildly interesting, because a convenient mechanism to load retailer wallets from cryptocurrency accounts would actually make the use of them more attractive.
There is no point try to extend Bitcoin acceptance at point-of-sale. That’s not what is was designed for and it makes no sense from a strategic perspective for retailers to mess around with in-store systems, service and acceptance to accommodate Bitcoin, Ethereum, DogeCoin or anything else. However, having online mechanisms to load the retailer wallets is a different proposition, because the point-of-sale systems only need to be modified once (to accept the wallet) and the any number of back-end conversions can be explored without requiring further front-end modifications. That’s a win-win for the retailers and for the cryptocurrency users.
Number goes up, number goes down. Cryptocurrencies as a whole have been tumbling, and the original cryptocurrency, Bitcoin, is no different. It looks as if there was a bubble and it is bursting. The economist John Kay is unconvinced that this bubble will lead to anything. He wrote that “the underlying narrative of cryptocurrencies is, by the standards of historic bubbles, unusually weak; more akin to tulips than to ultimately transformational innovations such as railways or electricity” going on to observe that the “power of the current narrative is that it brings together so many features which make for an attractive and infectious story” which I think is congruent with some observers’ view of Bitcoin as a protest movement rather than a financial revolution.
I have a suspicion that John may be wrong though. I think Bitcoin will have an impact and that it will lead to the creation of new markets. His mention of the railways reminded me of Nouriel Roubini and Preston Byrne’s observation that that the cryptocurrency mania of today “is not unlike the railway mania at the dawn of the industrial revolution in the mid-19th century”. I’d put the dawn of the industrial revolution a little earlier than that, but The Black Swan and The Black Marmot are on to something here and to see why you need to know a little about that railway mania that they refer to.
I wrote about it some years ago for Financial World magazine (back December 2011 in fact) and made the point that Victorian Britain’s railway boom was truly colossal. The first railway service in the world started running between Liverpool and Manchester in 1830 and less than two decades later (by 1849), the London & North Western railway had become the Apple of its day, the biggest company in the world.
(See Christian Wolmar’s fabulous Fire and Steam for a beautifully written history of the railways.)
This boom led to a colossal crash in 1866. The crash was caused (here’s a surprise) by the banking sector, but in that case it was because they had been lending money to railways companies who couldn’t pay it back rather than American homeowners who couldn’t pay it back. Still, then as in our very own crash of 2007, the government had to respond. It did so by suspending the Bank Act of 1844 to allow banks to pay out in paper money rather than gold, which kept them going, but they were not too big to fail and the famous Overend & Gurney bank went under. When it suspended payments after a run on 10th May 1866 (as frequently noted, the last run on a British bank until the Northern Rock debacle), it not only ruined its own shareholders but caused the collapse of about 200 other companies (including other banks).
(The directors of Overend and Gurney were, incidentally, charged with fraud but got off as the judge said that they were merely idiots, not criminals.)
The railway companies were enormous and many ordinary people had invested in them. When their Directors went to see the Prime Minister in 1867 to ask for the nationalisation of the railway companies to stop them from collapsing (with dread consequences for the whole of the British economy and in particular the widows and orphans who had invested in them) because they couldn’t pay back their loans or attract new capital, they didn’t get the Gordon Brown surrounded by advisers who happened to be bankers tea and sympathy followed by the suspension of competition law. Benjamin Disraeli told them to get stuffed: he didn’t see why the public should bail out badly run businesses, no matter how big they might be.
The Mallard, holder of the world speed record for steam locomotives, 126mph.
Needless to say, the economy didn’t collapse. As you may have noticed, we still have trains and tracks. A new railway industry was born from the ruins, just as new cryptomarkets will arise from the ruins of Bitcoin. The transport services kept running because the new industrial economy needed them and that economy kept on growing. The new post-industrial economy needs a new transport network, for bits rather than iron and coal, and Bitcoin’s heirs and descendants might well provide it. The impact of the railway crash was not restricted to rail transport and the industries that used it, just as the impact of the Bitcoin crash will spread far beyond online drug dealing and mad speculation.
This is hardly a novel observation. History has repeatedly gone through this cyclic co-evolution of technology, business and regulation to end with something pervasive and fundamental to the way that society operates, which is why I think Nouriel and Preston are right to use the comparison. Benoît Cœuré, chair of the Committee on Payments and Market Infrastructures (BIS), and Jacqueline Loh, chair of the Markets Committee (BIS) made a very good point about this in the FT writing that “while bitcoin and its cousins are something of a mirage, they might be an early sign of change, just as Palm Pilots paved the way for today’s smartphones”.
This, I think, is the narrative that I find most plausible. But what are cryptocurrencies “paving the way” for? I think it is for cyryptomarkets that trade in cryptoassets: cryptocurrencies with an institutional link to real-world assets. These are markets made up from money-like digital bearer instruments or, for want of a better word, “tokens”. As I have written before, it is not the underlying cryptocurrencies that will be the money of the future but the “tokens” that they support. Assuming that the fallout from the Bitcoin bubble is better regulation of the platforms, then cryptomarkets based on tokens will aid the evolution of post-modern capitalism as much as the invention of auditing helped Victorian entrepreneurs a century and half ago.
David Bowie was a genius. That is a word that gets bandied around all too lightly these days, but in his case it is entirely justified. And not because of his music, as brilliant as it is. No. Bowie was a genius because he understood the future. When looking at how the internet was developing, he famously predicted the end game: streaming. Indeed, he said at the time that music would become “like water” piped into our homes.
(And his music was indeed brilliant: Aladdin Sane was the first album I ever bought with my own hard-earned cash, Ziggy Stardust was part of the soundtrack to my college years and “Heroes” is one of my all time favourite songs.)
Not only did Bowie predict the future, he monetised it. In what I am convinced that future economic historians will surely highlight as one of the weak signals for change to a post-industrial economy, he created the Bowie Bond. This was a 10 year, 7.9% self-liquidating bond backed by the revenues from all of his music prior to 1993. The value of this over a decade was estimated at $100 million and stamped as AAA by credit rating agencies. Then, in 1997, these bonds were sold to Wall Street. Whether Bowie knew that this valuation was nonsense or not I couldn’t say, but he made $55 million from the bond sale. A few years later, the bonds were trading as junk. Bowie, as it turned out, was smarter than the bond market.
Ten years ago I wrote about the Bowie Bonds when I was thinking a lot about private currencies and digital money. It had occurred to me that those $1,000 Bowie Bonds were a shade away from being a form of Bowie Bucks and that if they had been issued as some kind of digital bearer instrument (DBI, or what many people now call “tokens”) then would have been a form of repetitional currency. I said that while it might seem strange to imagine trading in Bowie Dollars that are simply units of Bowie bonds, why not? As I noted at the time, it would be no different to trading with Edward de Bono’s “IBM Dollar” (in that it’s a claim on some future asset) or a similar instruments.
At the time, of course, I did not know that the shared ledger revolution was around the corner, so I imagined that Bowie Bucks would be implemented either in decentralised hardware (a la Mondex) or centralised software (a la Digicash). Now we have another and more appealing alternative to deliver the currencies of the future: tokens trading on shared ledgers. If Bowie were here today, I’m sure he would be discussing a token sale rather than a bond sale. But on what platform? Do the permissionless public ledgers work as a platform? Or do we need institutions to create permissioned ledgers with service-level agreements? How exactly will the money of the future work?
I’ll be talking about this world of cryptomarkets, cryptoassets and cryptocurrencies at the 3rd Nordic Blockchain Summit at Copenhagen Business School on Friday, so I look forward to seeing you all there. I’m genuinely keen to learn more in this space interested your spectrum of view on tokenisation and such like. Don’t be shy with the question.
Oh well. Just had another pointless argument about cryptocurrency and legal tender with someone in another context. The argument was pointless for a couple of reasons…
First of all, the argument was stupid because the person I was arguing with didn’t know what “legal tender” means anyway and, as I’ve already pointed out, it doesn’t mean what a lot of people think it means. Let’s just have a quick legal tender recap, using the United States as the case study. Section 31 U.S.C. 5103 “Legal tender” states that “United States coins and currency [including Federal reserve notes and circulating notes of Federal reserve banks and national banks] are legal tender for all debts, public charges, taxes, and dues”. Here is chapter and verse from The Man commenting on what that means: “This statute means that all United States money as identified above is a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services. Private businesses are free to develop their own policies on whether to accept cash unless there is a state law which says otherwise”.
TL:DR; The Man says no-one can force you to take dollar, dollar bills.
TL:DR; Bitcoin is not legal tender in Japan, nor anywhere else for that matter.
Nor, I strongly suspect, will it ever be. So let’s put that to bed and ask the more interesting question as to whether a central bank digital currency (e$, for short) would be legal tender. Here, I think the answer is unequivocal: yes, and in unlimited amounts, because there is no credit risk attached. A transfer of e$ is full and final settlement in central bank money and in time Section 31 U.S.C. 5013 will undoubtedly be extended to say so.
The British newspapers all reported on the latest figures for current account switching. Here’s an example: “Branch closures, IT meltdowns and vanishing cash machines have forced nearly a million disgruntled savers to ditch their bank and move to a rival in the past 12 months”. Wow. Nearly a million. That sounds like a lot.
But I wonder how many disgruntled customers did that last year? Not so wow. Nearly a million. So, basically, nothing has changed.
In fact the number of people switching accounts, while slightly up on last year, is 9% down on 2016. And the number of people switching is still a fifth down on 2012, the year before the banks were forced to introduce the Current Account Switching Service (CASS, a system which cost hundreds of millions of pounds) to reduce the average time to change bank accounts from around 10 days to a week.
Yes, that right. There are still fewer people switching accounts now than there were before the convenient and user-friendly account switching service was introduced.
Frankly, you can understand why no-one bothers switching. Every bank delivers basically the same service as every other bank, so the number of people switching accounts remains at around 3% of the customer base. And in a sector that is so heavily regulated, the cost of innovation is so high that only the most mass market of new products or services can get into production – it is very difficult to go down a more agile, design-led path.
The headline should have been “Despite everything that banks can throw at them, British bank customers resolutely refuse to move accounts”. This more accurate description of the retail banking landscape appeared, as far as I could tell, only in the Pink ‘Un. In a lovely piece titled “What would it take for you to switch your bank account”, Clear Barrett highlights the specific example of TSB and notes that despite the catastrophic failure of their system and weeks of chaos, only a tiny fraction of the customer base blew them off and switched! They had a net loss of only 6,000 customers (26,000 customers left but – astonishingly – 20,000 joined).
What about the “challengers” you say? Well, first of all, “challengers” is a bad name for what are essentially niche banks. Second of all, what about them? According to the FT, when data analytics company Ogury carried out a study of just over 1.5m mobile users in the UK in the second quarter of this year, it discovered that all of the top ten most-used ‘banking’ apps were from the traditional high-street banks.
So, no-one changes their current accounts (or their savings accounts, which the FCA says gives the big banks a cheap way to fund lending and stifles the “challengers”). But in the future, this inertia will be overcome.
How? Well, as the FT noted, and as I have repeated ad nauseam, “UK bank executives probably aren’t losing too much sleep over fintechs just yet. More likely to have them reaching for the Zopiclone are the US tech giants moving into the payments sector who — somewhat perversely — could end up being the biggest beneficiaries of PSD2″.
What does this mean for account switching? I think it could be very significant indeed. Open banking means that banking services will be delivered by these tech giants acting as “third party providers” (TPPs). The TPPs will manage the relationship with the customer and interact with the banks through application programming interfaces (APIs). The banks will be the heavily regulated, low margin, high volume machines sitting behind those APIs, and the will be selected because of service level agreements and cost/capacity calculations, not because of adverts of spacemen floating down beaches while singing.
The account switching will be done by bots rather than by those customers, disgruntled or not. When I decide to open my Amazon savings account, I’ll never bother to read the small print and find out that the account is actually provided by Barclays. And when Barclays try to charge Amazon a penny more, Amazon will move the account to Goldman Sachs. I haven’t switched my main bank account for 41 years, but I can imagine algorithms changing it for me every 41 days to get the best possible deal on financial services at all times.
According to The Daily Telegraph, “written signatures are dying out amid a digital revolution”. I’m going to miss them. Of course I know that when it comes to making a retail transaction, my signature is utterly unimportant. This is why transactions work perfectly well when I either do not give a signature (for contactless transactions up to £30 in the UK, for example, or for no-signature swipe transactions in the US) or give a completely pointless signature as I do for almost all US transactions.
“Fears are growing that this is potentially leaving people open to the risk of identity theft and fraud as their signatures are more easily imitated.”
If I do have to provide a signature, then for security purposes I never give my own signature and for many years have always signed in the name of my favourite South American footballer who plays for Manchester City. Now it turns out that this is sound legal advice, since according to Gary Rycroft, a solicitor at Joseph A. Jones & Co. it is an increasing problem that people people order things online but sometimes they do not show up so to acknowledge receiving something “I always sign my initials, for example, so I could prove if it wasn’t me” (because, presumably, a criminal would try to fake Gary’s signature).
Now the issue of signatures and the general use of them to authenticate customers for credit card transactions in the US has long been a source of amusement and anecdote. I am as guilty as everybody else is using the US retail purchasing experience to poke fun at the infrastructure there (with some justification, since as everybody knows the US is responsible for about a quarter of the world’s card transactions but half of the world’s card fraud) but I’ve also used it to illustrate some more general points about identity and authentication. My old friend Brett King wrote a great piece about signatures a few years ago in which he also made a more general point about authentication mechanisms for the 21st-century, referring to a UN/ICAO commissioned survey on the use of signatures in passports. A number of countries (including the UK) recommended phasing out theme-honoured practice because it was no longer deemed of practical use.
Well, signatures have gone the way of all things. In April, the US schemes stopped requiring signatures.
They were sort of defunct anyway. According to the New York Times, Walmart considers signatures “worthless” and has already stopped recording them on most transactions. Target has stopped using them too. I completely understand why, but to be honest I think I’ll miss signing for purchases in America.
No more signing Sergio Aquero for US credit card transactions, hello to signing Sergio Aquero for the Amazon lady who calls at my house with monotonous regularity.
If you are interested in the topic of signatures at all, there was a brilliant NPR Planet Money Podcast (Episode number 564) on the topic of signatures for payment card transactions a couple of years ago, in which the presenters asked why were we still using this pointless authentication technique.
Ronald Mann (the Colombia law professor interviewed for the show) noted that card signatures are not really about security at all but about distributing liabilities for fraudulent transactions and called signatures “eccentricrelics”, a phrase I love. His point was that the system doesn’t really care whether I sign my transaction Dave Birch or Sergio Aquero: all it cares is that it can send the chargeback the right way (bank or merchant, essentially) when it comes in.
In addition to the law professor, NPR also asked a Talmudic scholar about signatures.
(The Talmud is the written version of the Jewish oral law and the rabbinic commentary on it that was completed in its current form some time in the fifth century. There are two parts to it: the oral law itself, which is known as the Mishnah, and the record of the rabbis arguing about it and what it meant, which is known as the Gemara.)
The scholar made a very interesting point about the use of these eccentric relics when he was talking about the signatures that are attached to the Jewish marriage contract, the Ketubah. He pointed out that it is the signatures of the witnesses that have the critical function, not the signatures of the participants, because of their role in dispute resolution. In the event of dispute, the signatures were used to track down the witnesses so that they can attest as to the ceremony taking place and as to who the participants were. This is echoed in that Telegraph article, where it notes that the use of signatures will continue for important documents such as wills, where a witness is required.
(The NPR show narrator made a good point about this, which is that it might make more sense for the coffee shop to get the signature of the person behind you in the line than yours, since yours is essentially ceremonial whereas the one of the person behind you has that Talmudic forensic function.)
The Talmudic scholar also mentioned in passing that according to the commentaries on the text, the wise men from 20 centuries ago also decided that all transactions deserved the same protection. It doesn’t matter whether it’s a penny or £1000, the transaction should still be witnessed in such a way as to provide the appropriate levels of protection to the participants. Predating PSD2 by some time, the Talmud says that every purchase is important and requires strong authentication.
So, my interpretation of the Talmud is that it is goodbye to contactless and goodbye to stripe and goodbye to chip and PIN and hello to strong authentication (which may be passive or active) and secure elements: we have the prospect of a common payment experience in store, on the web and in-app: you click “pay” and if it’s for a couple of quid the phone will just figure hey it’s you and authenticate, if it’s for a few quid your phone will ask you to confirm and can use your finger or your face and then if it’s for a few million quid you’ll get a callback for voice recognition and a retinal scan. The same purchase experience for everything: the cup of coffee and the pair of shoes and the plane ticket. It turns out that once again we can go back to the future in the design of our next retail payments system.
No, it isn’t. Bitcoin isn’t legal tender anywhere and it never will be any more than Avios will be (and I’ve bought more cups of coffee with Avios – one – than I’ve ever bought with Bitcoin). Sorry to be a spoilsport again, but to the very best of my knowledge, Bitcoin is not legal tender in any country. Nor, I would wager, will it ever be. Legal tender is an outdated and essentially meaningless concept, which is why I am baffled by the continued discussion of it.
Who knows what “legal tender” means anyway? Pretty much no-one, in my experience. I remember a story about a schoolboy who was chucked off a Welsh bus for trying to pay with a Scottish banknote. The bus company apologised, saying that “Scottish currency is legal tender” which, of course, it isn’t. Scottish banknotes are not legal tender in England or, for that matter, Wales. Only Bank of England notes are legal tender in England and Wales. On which topic, many thanks to @anshumancrypto for pointing me to this…
I hate to spoil the joke but Scottish banknotes are not legal tender anywhere, even in Scotland. In fact, Bank of England banknotes are not legal tender in Scotland either, because Scotland (which has a separate legal system) has no legal tender law although bizarrely (and thanks to Colin Platt for this via Twitter) Royal Mint coins are legal tender in Scotland in thanks to the Coinage Act 1971 (Section 2).
No legal tender notes! Oh my goodness, it must be chaos!
Actually, it isn’t. I’ve been to Scotland several times and I’ve often seen Scots buying things in shops using banknotes, cards and mobile phones. So not having legal tender laws does not seem to be much of a barrier to trade. This shows how uninteresting the issue of “legal tender” really is in the modern age and for decades I’ve tended to assume that any article, tweet or LinkedIn comment that talks about making a digital currency legal tender is written by someone who doesn’t really understand either topic.
I do mean decades, by the way. If I cast my mind back to 2006, I can remember writing one of my first ever blog posts about the Snap Cafe in Georgetown, Washington D.C. This particular establishment had attracted my attention because it had decided to stop accepting cash. This is commonplace for forward-looking eateries today, but then it was a revolutionary act. As I reported at the time, the owner said that it had saved her time and money, meant she didn’t have to go to the bank any more and (most importantly, I suspect) didn’t have to trust staff she didn’t know. That point about trust is a recurrent theme in surveys of retailers and cashlessness: even if they perceive cash to be cheaper than electronic payments, cash has a tendency to evaporate. There was discussion around that time as to whether it was legal to do this, since Federal Reserve Notes (ie, greenbacks) are legal tender in the U.S.A. So, people said (incorrectly) that the cafe owner could not refuse them, and some outraged comment asking whether it was legal to ban cash from an establishment ensued.
Some time later I remember an interesting clarification of the subject of legal tender in a useful paper on Payments and the concept of legal tender by Nick McBride, Legal Counsel, Reserve Bank of New Zealand. The paper described something else that happened many years ago when the coins in New Zealand changed. The new coins were introduced on 1st July 2006. For a period of three months, the old coins were circulating in parallel with the new, but some retailers put up signs saying that they wouldn’t accept the old coins. This, presumably, was because they didn’t want the hassle of having to bag them all up and take them to the bank to swap for new coins. So… could retailers refuse to take the old coins in payment even though they were legal tender?
The answer in both cases was that retailers can refuse to accept legal tender.
Wait, what? So what’s the point of legal tender then?
Well, the point of it is that you cannot force a retailer to accept legal tender (or indeed any other form of tender). If, however, you buy something from them and there is no contractual barrier to the use of any form of tender, and you offer legal tender in payment, and they refuse it, then they cannot enforce the debt in court. That’s what legal tender means: it’s about discharging debts. If you incur a debt you can discharge it with legal tender, but you cannot be forced to incur the debt in the first place, if you see what I mean.
A couple of years later, the European Commission (remember that) put forward its recommendation on legal tender (22nd March 2010). It was, as I recall a banker saying, “strange and undesirable”. So, what is the European perspective? Well, the key points were:
Euro notes and coins are legal tender and retailers can only refuse them for reasons of “good faith” (for example, the retailer has no change).
Retailers should only refuse high-denomination banknotes in “good faith” (for example, if the value of the note is disproportionate to the purchase)
No surcharges should be imposed on cash payments.
Banknotes stained by the Intelligent Banknote Neutralisation System (IBNS) remain legal tender but should be returned to national central banks (as they likely come from a robbery).
Retailers must accept 1 and 2 eurocent coins in payment.
Sensible policies for a better Eurozone, you might think, but you’d be wrong. The essence of these recommendations was that shops will be forced to accept €100, €200 and €500 euro notes and 1- and 2-euro cent coins. Why? Well, because in many countries the shops don’t want them. In some countries (eg, The Netherlands and Finland) the retailers and the public seem to have, in a decentralised fashion, decided to abandon the 1- and 2-cent coins. They are nothing but a hassle and do nothing to assist commerce. At the other end of the scale, retailers in many countries will not accept high-value notes, partly because they don’t want to make change and partly because they are worried about counterfeiting. After all, if you are a corner shop and you get stuck with a bent €500 note then you are €500 out of pocket: the ECB won’t take your counterfeit note and give you a new one. It’s worth paying a few cents to the bank for a debit payment to avoid that risk.
Anyway, apart from people like me, Professor van Hove and the European Commission, no-one much cared about legal tender one way or the other for years after the recommendation until Bitcoin came along, at which point the phrase became rather common. Almost everywhere I see, however, it is being misused (as I hope I have demonstrated). By all means please continue to use it, but please do read up on it first. Legal tender does not mean what you think it means.
As you may know, the United Kingdom leads the world in digital identity infrastructure and is a beacon to the nations when it comes to the use of new technology for identification, authentication and authorisation. Just kidding of course. Here’s the identity that I used at Money 2020 in Amsterdam last week when I was asked to prove who I was at the registration desk:
Yes, the gold standard for identity cards, the Southern Railway photocard, issued only to qualified commuters after rigorous KYC (you give them a photo and then write your name on the card yourself).
The truth is that we don’t have a digital identity infrastructure (or in fact any other form of identity infrastructure) and the shambolic approach to identity is manifest in a daily litany of frauds, frictions and fantasies (often from the government). Here is an absolutely typical example: a nightclub is issuing its own identity cards since it can no longer rely on any of the other forms of “identification” that are in use. The nightclub manager says that the number of people presenting fake IDs is crazy, so the nightclub is going to issue its own identity cards with a picture on them. In order to get one of these cards, customers will need to present “two forms of up-to-date official ID” (not entirely sure what this means, since there is no “official ID” in the UK) and then in order to get into the club, customers will need either one of these club cards or a passport or a driving licence.
I’ve written about this at tedious length before, but the core of the issue is that the identification mechanisms that are in use (e.g., driving licences) are impossible to validate and requiring them to be used at all actually leads to more identity fraud because the analogue artefacts employed are stolen, forged and abused in a variety of different ways stop.
Before I continue with this specific example, let me make a general point about how I think these things should work in an always on, connected world. First of all, retailers and other service providers should all have their own virtual identity, or persona, for every customer because they need to be able to communicate and connect with those customers in order to deliver better services and products. In essence, every customer should have a loyalty card. The contents of that card should be unique to each service provider and any compromise of it should not lead to compromise with other service providers. In a digital identity world, this sort of thing is straightforward. You present a virtual identity from an organisation that is acceptable to the nightclub (e.g., a bank) and they send you back another virtual identity that contains things of relevance to the nightclub, such as your customer number and preferences.
In the virtual world, this makes sense because your mobile phone can store millions or billions of loyalty cards. In the “real” world, it will be really annoying to carry around thousands of loyalty cards with you wherever you go, but when those loyalty cards are (essentially) public key certificates then there is no problem.
So let’s go back to the nightclub and see how they might progress on a digital world, by creating a loyalty card based on digital identity infrastructure. Doing things this way has three distinct advantages. First of all, if you are a nightclub then your bar staff may well not be at MI5 levels when it comes to spotting a fake Romanian passport but they might be able to spot a fake version of your nightclub identity. (In practice, of course, they wouldn’t have to because the validity of the card will be checked by their phones). Secondly, by giving every customer loyalty card you are able to interact with them securely (in technical terms you can always send messages encrypted to that persona). Finally, as the nightclub manager himself notes, “we can also ban people and remove the card at our discretion, giving us more control and creating a safer environment”.
On a commercial note. you might wonder why organisations that already spend a lot of money on working out who people are (e.g., banks) don’t take this sunk cost and transform it into a revenue stream. I’ve more than once been told by a bank that there is no business for providing ID as a service to business customers, when clearly this nightclub (to pick just one example) is perfectly prepared to spend money on creating its own identity service when I’m sure the management would much rather that their efforts be directed towards running a nightclub.
Banks should be looking forwards by creating a digital identity infrastructure and then selling products and services based on the infrastructure to, for example, nightclubs. That way, the nightclubs could produce their own branded app (by adding a skin to a generic multi-bank identity app, for example) and pay the bank a pound to testify to the age of the holder rather than waste money having to do it for themselves.
I once had lunch with Italian anti-euro nationalists. They had invited me because I was in Rome to give evidence on cryptocurrency to a committee in the Italian Parliament and they wanted to ask me about parallel and complementary currencies (yes, really). Here I am in from of the Italian Parliament building, Montecitorio, for the public hearing.
My host for this day was Geronimo Emili (below) from the “War on Cash”. I won’t go into the discussions — they have been covered elsewhere (e.g., here) — but I focused my contribution on the radical and innovative nature of the Bitcoin protocol while remaining sceptical about the potential for Bitcoin as a currency (although I did support the idea that new kinds of currency are around the corner). I think the past four years have reinforced my summary comments to the hearing, which were broadly that Bitcoin is a genuine technological breakthrough and it will cause a revolution, but probably not in payments.
After that, it was off to lunch with (if memory serves) the Deputy Leader of one of the political parties that was in favour of more autonomy for the North. We had a very interesting conversation – through a translator – about the potential for new technology to make regional and city currencies a practical possibility. I’m rather in favour of having more currencies and particularly more currencies that are more closely linked to the values and needs of communities. There is a general argument in favour of a regional approach to currencies in a mobile-phone powered always-on digital age. I first heard it clearly expressed by the late Sir Richard Body MP. Sir Richard was a noted eurosceptic, supporter of an English parliament and, rather famously, one of the “bastards” referenced by John Major. He was also very interested in the theory and practice of money and at the second annual Consult Hyperion Forum (back in 1999) he gave an eloquent explanation as to why regional currencies with floating exchange rates would lead to more efficient resource allocation and more beneficial resource distribution than government transfer payments do.
I think I may have mentioned this at lunch.
Although I thought no more about it at the time, it looks as if I may have inadvertently conspired to destroy the euro, as I now read that the anti-euro Lega nationalists and the alt-Left Five Star Movement are planning to go around the euro and create a rival payment structure based on ‘IOU’ notes. This would subvert the monetary control of the European Central Bank and might well set off a chain reaction in Catalonia, Scotland and perhaps even London.