With MintChip for Sale, Can Digital Currencies Outlast S&H Green Stamps?

In the wake of Bitcoin’s continuing problems with price volatility and unstable processors, the future of virtual currencies got even cloudier over the past week on news that the Royal Canadian Mint plans to sell its MintChip digital-currency system.

Rumors that MintChip was on the block had been circulating in the payments industry for weeks (two calls by Digital Transactions News to the Royal Canadian Mint last month went unreturned.) The Ottawa-based Mint confirmed the rumors last Friday in a brief statement to The Wall Street Journal.

Sale of the program’s software, patents and other assets, however, doesn’t necessarily mean the end of MintChip. It does, however, portend the loss of one of its key strengths—its implicit government backing.

While many backers of Bitcoin and other decentralized virtual currencies hail their crowd-funding and complete separation from bank regulators and central banks, payments consultant George Warfel of San Francisco-based Edgar, Dunn & Co says they don’t garner the trust that people give to official currencies. “That trust factor is essential,” said Warfel, who co-led a panel about virtual currencies Tuesday at the NACHA Payments 2014 conference in Orlando, Fla.

To sharpen the audience’s perceptions about the often murky world of digital currencies, Warfel took a generally skeptical view of them while the other co-leader, his Edgar, Dunn colleague Edgar Rivera, took a more pro position. One key advantage, Rivera said, is Bitcoin’s very low transaction costs compared with established payment systems. He also noted that another new currency, Dogecoin, an open-source peer-to-peer payment system, started out as a “practical joke on the Internet” but is gaining traction. Dogecoin isn’t plagued by Bitcoin’s hoarding problem—reportedly 50% of all Bitcoins created, or “mined,” have never been traded.

But Warfel said “there are far more attempts to introduce currencies” than there are currencies in use. “Is this any more permanent than S&H Green Stamps?” he asked the audience.

Many people do indeed think digital currencies are a permanent addition to the payments scene, if judging only by the strong reaction Warfel received near the conclusion of his remarks when he predicted that official currencies will remain dominant. “In the longer term, I think we’ll look back at a fascinating, interesting anomaly” of digital currencies, he said.

One woman stood up and accused Warfel of being “irresponsible” for merely suggesting that digital currencies might not be here to stay. Then a man went on at length disputing Warfel’s point that government backing is an important point in any currency’s success. Warfel politely listened and acknowledged their comments, but he did not argue with his listeners.

MintChip garnered the spotlight in 2012 when the Royal Canadian Mint, a government-chartered corporation that mints coins for Canada and many other nations, launched a contest for software developers to create applications for the chip-based alternative system it had conceived. The project was built around a smart card integrated circuit that resides on a micro SD chip that could be inserted in a mobile phone or on a USB stick that plugs into a personal computer. Merchants would need chip-reading hardware to accept a MintChip payment. The Mint envisaged the system as an anonymous (although it is possible to trace the identity of a payment receiver) alternative for low-value and online transactions.

It’s unclear who might buy MintChip and what will become of it, especially if a non-Canadian buyer emerges. “Whether or not it will be government-backed is the open question,” said Warfel.

One of the believers in the new digital currencies is Jeremy Allaire, chief executive of Boston-based Circle Internet Financial, a startup that has raised $26 million as it develops Bitcoin-based financial and payment services. He compares the current state of digital-currency development to the commercial Internet of the early 1990s. “We’re still in the pre-Netscape era of Internet technology,” Allaire tells Digital Transactions News.

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