Security Notes: Welcome to the New Age of Cash

Gideon Samid • Gideon@BitMint.com

Like predictions of the paperless office, the often-repeated expectation of the demise of cash remains premature. Most of us are too far removed from the circumstances of the vast majority of people on this planet for whom cash is the only medium of exchange, and where your sock, or your phone, is your bank. Even in societies such as ours, we are all too often reminded of how crucial cash can be. As I pointed out in my column last month, when Hurricane Sandy hit, the only way to fill up your car was with cash.

But that doesn’t mean cash can’t have an electronic future. Much as weighty and bulky books can become light, convenient, and elegant tablets, so the metal-heavy, weighty, and bulky coins we still carry around can become light, utilitarian, and elegant hybrid coins.

In the near future, your favorite mint will issue “digital money”—a cryptographically engineered bit string. Its value will be, say, $1. The bit string can be written into a micro secure-digital (SD) chip, which in turn may be housed in a dollar-coin lookalike. As long as this coin is visibly intact, you may assume that no one has used the micro SD. And when you need to pay someone a dollar, you will pass it on.

From Alice to Bob, from Bob to Carla, this dollar coin circulates exactly as the old-fashioned coin does. It goes where the other goes, makes the same purchases, fills the same pockets. At some point, the current owner of this dollar coin will crack it open, pull out the micro SD, and latch it into her smart phone. A simple app will validate the string and keep it ready for any online transactions.

Unlike regular coins, which are issued only in small denominations because of fear of counterfeiting, the hybrid coin may be issued in any denomination. The micro SD chip could be loaded with a bit string worth, say, $100, and the physical envelope of the micro SD would be marked with the same face value. This $100 coin would be passed from hand to hand, using no computers, no Internet, no clouds—and no corresponding vulnerability. The difference is that, when cracked open, the internal micro SD card contains $100 loadable to your phone.

Digital money is designed to be secure and robust while flowing naked through the veins of the Internet, so clearly it is more secure when it is housed in its “shell.” The virginity of the chip itself is visibly verifiable by the fact that the shell, or housing, is intact. And what about counterfeits?  The technology to manufacture the shell may not be patented but rather kept as a trade secret, to make counterfeiting too expensive. High-denomination coins could be equipped with a frequently changing code that can be verified by the payee on a mint-verification site.

It may be going too far to predict the demise of bank notes. However, hybrid coins—physical shell, digital core—could serve as disaster-recovery money, where they become negotiable only when the right authority so decrees. Or they could serve as loyalty currency and reward points. Customers could redeem the hybrid coins at the sales counter, or crack them open and upload the micro SD to their online transactions. For example, people might trade with Wal-Mart dollars, exchange Best Buy currency, or work with some coalition coins good for any store in the shopping center.

In underdeveloped countries, a shopkeeper by the end of the day will crack open the coins she collected from her cash-only customers and feed them through her cell phone (the only infrastructure available) to her cloud-based accounts: one for operations, one for saving. Fast, secure, efficient. Without these hybrid coins, this shopkeeper would have to wait a decade or two for roads, power grid, transportation, and, finally, banks.

A hybrid coin is composed of a body (the shell, the container of the micro SD or any suitable bit-storage device), and a soul (the string of bits written on the device). When a hybrid coin dies, the body is disposable, but the soul flies into Internet heaven, from where it may reincarnate in another “body.”

I don’t know about you, but for me this is the essence of cool. It’s a vision that unfolds and reveals new facets daily. We’re working on it here at BitMint, so retirement will have to wait.