The Future of Money (Hint: It’s Virtual)

Could the next generation of currency be a digital, online-only version of cash?


The Internet, in its purest, truest form, empowers individuals over governments and large institutions. An imperfect example is peer-to-peer lending. With sites like Prosper and Lending Club, the Internet has removed large financial institutions from the lending process (at least in some small measure). Peer-to-peer lending is an imperfect example, however, because peer-to-peer websites still represent a middleman that defines the rules and takes its cut. But it’s progress.

[In Pictures: 10 Smart Ways to Improve Your Budget.]

And that brings us to the ultimate Internet coup—digital currency. Also referred to as eCurrency or electronic money, digital money is created and controlled by all of us, not central banks. While the implications may not be clear at first, they are far-reaching. Today, a government exercises significant control over businesses and individuals through its control of money. When the government wanted to shut down Wikileaks, its primary attack came in the form of choking off donations to Wikileaks via the likes of PayPal, Visa, and MasterCard. And that says nothing of the Federal Reserve’s immense power to control the value of the U.S. dollar, or a government’s ability to fund wars by printing money.

While all of this may seem far-fetched, a digital currency called Bitcoin has brought us one step closer to a Jeffersonian revolution in money. Created by Satoshi Nakamoto in 2009, Bitcoin is a computer program implementation of a concept called cryptocurrency. Bitcoins can be saved on a personal computer in what is called a Wallet File and used to buy products and services where Bitcoins are accepted.

Without going into the math behind the program, the Bitcoin software controls the number of Bitcoins in circulation. Currently there are about 6.2 million Bitcoins in circulation with a value of about $49 million U.S. dollars. And Bitcoins can be used to purchase everything from webhosting service to music.

Bitcoin is revolutionary in several respects. First, because the distribution is not controlled by a central bank, inflation is impossible. Second, the exchange of Bitcoins, much like paper currency, is completely anonymous. Unlike a PayPal account or credit card, the names of the businesses or individuals exchanging Bitcoins are not recorded. And because Bitcoins are exchanged directly from person to person without a middleman, there are no intermediaries for a government to regulate.

There are a couple of ways to get Bitcoins. First, you can “mine” for them using a free program available through Second, if you sell goods or services, you can accept Bitcoins as payment. And finally, you can purchase Bitcoins on various exchanges. The current cost of a Bitcoin is just over $6.93.

Will Bitcoin bring an end to central banks? Hardly. But it may give us a glimpse of a future in which our currency is “of the people, by the people, and for the people.”

DR is the founder of the popular personal finance blog, the Dough Roller, and author of 99 Painless Ways to Save Money.