MONEY: The coming medium of exchange may be all-digital. Already our coins and bills have been largely superseded by credit cards, which rely on digital technology. Banks are still the intermediaries, however, and "real" money -- in some sense or degree -- backs up our VISA, MasterCard or AMEX transactions.
With Bitcoin, the decentralized electronic cash system, no "real" money, bullion, or physical property backs up your accumulated digital wealth. You can, however, convert Bitcoins into dollars, euros or other currencies, and vice versa.
With your Bitcoins you can buy just about any product or service, so long as the other party accepts Bitcoins. No "real" money or credit card required. (Scroll down for video.)
There's still a role for banks. Even when and if digital currency predominates, banks won't go away. We'll still need them for "legacy" transactions, the analog of still-thriving postal mail and delivery services; we'll also need them for currency conversions and other services ranging from mortgages to business loans. Some organizations, such as governments, may be slow in moving to digital-money transactions. Pay your taxes in Bitcoins? Eventually, maybe, but not right away (though Canada could be an exception; see below).
Middlemen already: Bit-Pay is the world leader in Bitcoin payment processing. Though not a bank, they're middlemen like banks. They function like credit card services but with very low transaction fees and minimal risk (assumed by Bit-Pay). If you're a merchant or seller of anything, you can accept payments from buyers in any nation regardless of the local currency; and Bit-Pay performs instant conversions to dollars or euros if desired. "Real" money simply appears in your designated bank account; or you can keep your money in Bitcoins if you prefer.
A marketing opportunity for smaller banks? Along with the trend toward the virtual and global, there's also a trend toward the "real" and local -- everything from local organic produce to grid-free energy like solar panels. Millions may be tempted to move their money from impersonal too-big-to-fail institutions to friendly community banks, but need more reason to do so. By forming an alliance with organizations such as Bit-Pay, smaller banks could offer the best of virtual/global efficiency along with the best of real/local personalization.
Easy to start using Bitcoins now: Just go to http://bitcoin.org and sign up. Bitcoin wallets are also becoming available as computer and smart-phone apps. If you're a seller of anything and want to put your toe in the Bitcoin waters, you can apply to become a Bit-Pay merchant, at https://bit-pay.com.
Hot trend worth watching: With users in more than one hundred countries, Bitcoin usage appears to be growing exponentially, like email or Internet telephony. And the current economic uncertainties fuel the trend. Canada's Financial Post reports that Europeans are moving their money out of banks and into safe havens including U.S. Treasuries and bitcoins: Euro fears boost virtual currency Bitcoin. A Forbes contributor, Jon Matonis, regularly reports on the digital-money trend, including Bitcoin: http://blogs.forbes.com/jonmatonis/.
Recently Canada announced a competitor to bitcoins: MintChips. This development provides governmental endorsement to the idea of all-digital money. However, with MintChips there's an institution in the middle, the Royal Canadian Mint. Not so with Bitcoins (except for optional service organizations such as Bit-Pay). The peer-to-peer system liberates transactions from conventional banking or governmental control. Toronto Star: Royal Canadian Mint to create digital currency.
See the New York Times report A Shift Toward Digital Currency by Jerry Brito, senior research fellow at the Mercatus Center at George Mason University and director of its Technology Policy Program.
Here's an interview of Britto on the future of digital money: