Like most things in the financial world, digital
currencies are one of those things that many people talk about, but few
understand it. Even the taxi driver who picked me up at the Singapore airport wanted
to talk about it. In fact, he tried to convince me that I should buy a new
digital currency that I had never heard of. He was convinced that he will
become a millionaire in couple of years.
I was not convinced but he got me thinking
about digital currencies. The question was whether they will replace physical
currencies that are still in circulation. After much thinking, I have come to the view that digital and
physical currencies complement each other. The best way to explain this is to
tell you a story that I came across in the book, The Undoing Project.
During a combat mission in a desert battlefield, soldiers
in a platoon refuse to wear helmets due to hot weather. When the colonel raises
his concern, they reason that a bullet is going to kill them anyway, if their
name is written on it. To which the colonel says – what about all those bullets
that are addressed as ‘to whom it may concern’?
Currencies operate in the same way. They differ in whom
they are addressed to. Like some bullets, digital currencies need a person’s
digital address to reach the target destination. As with some bullets, physical
currencies do not have a specific destination to reach. They are just bills
addressed as ‘to the bearer’ in an economy.
PS – I tried to explain bitcoin to a man at a bar in
Australia. He pulled out a $50 bill and asked me ‘what is wrong with the yellow
peril’? His friend added ‘the Sheila won’t accept coins, mate. She wants notes’
