Will there be a cashless society?

Will there be a cashless society?

Surprising fact about money is that it often has no intrinsic value. Instead, money is an object that has a value placed on it, which allows for the trade of goods and services.

Before money was invented, people bartered for goods and services. The history of bartering dates back to 6000 BC. Traditionally, bartering systems were used within the local community. For example, a farmer with eggs and milk can trade them to the local baker for a birthday cake or to a loaf of bread.

But when societies evolved, the bartering system was facing a lot of problems and confusions as it had limitations. Currency systems were developed to eliminate the hassle. Early currencies were “commodity money,” meaning they derived intrinsic value from the precious metals they were made of.

The most notable use of representative money is under the gold standard, where each country’s currency is tied to a fixed amount of gold.

The gold standard is a monetary system where a country's currency or paper money has a value directly linked to gold. With the gold standard, countries agreed to convert paper money into a fixed amount of gold.

A country that uses the gold standard sets a fixed price for gold and buys and sells gold at that price. That fixed price is used to determine the value of the currency. For example, if the U.S. sets the price of gold at $500 an ounce, the value of the US dollar would be 1/500th of an ounce of gold.

The drawbacks of the gold standard became clear during World War I. The gold standard left little room to adjust the money supply because new money could only be issued with a new supply of gold.

The end of representative money ushered in our current form to fiat money. Fiat money does not possess intrinsic value nor is it backed by commodities. Rather, its value is determined by supply and demand, backed by the creditworthiness of the issuing government.

Main disadvantage of the fiat currency system is that there’s no universal currency. Therefore, to purchase goods and services in a different country, one must convert their currency to that of the other nation.

And the most important evolution was the introduction of banks. The first banks were started by the Roman Empire around 1800 B.C. These banks offered loans and accepted deposits from individuals, but would later disappear with the collapse of the empire.

By the turn of the 19th century, banks had become respectable organizations within communities and learned the concept of fractional reserve banking. As many people started using the services that banks were offering, many new financial trends, new products and tools were introduced. Click and read our blog to know more on Why are international exchanges preferred over banks.

As paper money was getting more and more popular the problems like bank robberies, burglaries and corruption increased. People were scared to carry money or hold it in their homes and were looking for options for cashless transactions and at the same time cash storing options with easy accessibility 24 hours.

On September 2, 1969, America's first automatic teller machine (ATM) made its public debut. After ATM’s Banks started introducing easier money less transactions by issuing Debit and Credit Cards, Online payments, etc.,

With the Internet boom and growth of e-commerce, online payments have become more convenient worldwide and in 2020, credit cards were the most commonly used payment method in the U.S.

Today, online payments are one of the most popular ways to pay for goods and services. With online payments, you can simply enter a credit or debit card number on a website and pay for the goods you want. Online payments can also be made using a bank account number and routing number, but that process can take several days. When you make online payments through a debit or credit card, your card is typically charged right away.

Then came the biggest evolution in cashless transactions, the introduction of Digital Currencies. On 3 January 2009, the bitcoin network was created by Satoshi Nakamoto and Bitcoin changed the world , with the introduction of the crypto currencies world elevated to a new phase. These currencies have a value assigned to them just like any other type of money, with billions of dollars in digital money being transferred all the time.

With the hassle of using banks with their anti-money laundering policies, rules and regulations of the countries, and of the fear or risk of banks and financial institutions going bankrupt or rogue, leaving depositors penny less, many people moved to crypto currencies for the freedom and reliability. With the introduction of many block chains such as Ethereum chain, Binance Chain, Solana Chain and many more the crypto currencies bloomed. Resulting in many new crypto currency tokens or coins flooding the market.

With the wide use of crypto currencies came Decentralized Finance also commonly known as DEFI. Decentralized finance is an emerging financial technology based on secure distributed ledgers similar to those used by cryptocurrencies.

DeFi eliminates the fees that banks and other financial companies charge for using their services. Individuals hold money in a secure digital wallet, can transfer funds in minutes, and anyone with an internet connection can use DeFi.

Another most popular introduction towards the cashless society is the introduction of digital wallets. An electronic wallet (EC), or, in other words, an electronic means of payment - that is how it is called in the law - is a payment instrument for storing money, transfers and paying on the Internet.

The basic functionality of an electronic wallet usually includes:

  •  non-cash payment for goods, services, fines, other payments;
  •  transfers to other wallets, bank cards, accounts, money transfer systems;
  •  replenishment through cards, terminals, as well as in other ways;
  •  receiving funds from external sources;
  •  linking a bank card.

Using digital wallets are convenient for online shopping enthusiasts and freelancers: programmers, designers, copywriters and tutors. With many online scammers trying to steal your bank account or credit card details, this is the safest and fastest way. The most popular Digital wallets are PayPal, Google Pay, Apple Pay, Dwolla Pay, Amazon Pay, Ali Pay, etc.,

With the pandemic of Covid 19 most countries experienced lockdowns, leaving many of us staying indoors with minimal physical contacts. Many started using digital money during the pandemic for their safety and convenience.

The move towards a cashless society is happening at an accelerated rate. Sweden, Australia, and many other countries were predicted to be cashless before the end of this decade, and the pandemic accelerated the move into a high gear. In 2021 only 19% of transactions in the US were cash transactions and cashless payment volumes are expected to further increase by 43% between now and 2025.

According to Prosper Insights & Analytics, almost 30% of each population prefers to use contactless checkout when it comes to businesses they frequent.

The need to store, protect, withdraw and deposit physical money disappears with the use of cashless transactions.

Moving more towards a cashless society the Internet has revived the barter system, allowing participants to trade goods and services. With the evolution of digital currencies, traditional paper and coin currency systems may soon face the same fate as the old barter system. Fiat currencies, backed by the issuing government, are subject to theft and devaluation from inflation, whereas digital currencies are secure through encryption and are a hedge against inflation.

Innovations such as embedded microchips, NFC (Near Field Communication) technology, AVS (Address Verification Service), digital wallets, geolocation and artificial intelligence payment systems will all continue to strengthen security around cashless transactions.

Digital currencies are decentralized and have considerably lower fees for international transfers. They are also readily accessible, expediting payments and transfers. As more retailers and businesses accept digital currencies, their popularity increases, and eventually disappearance of fiat currencies is inevitable.