By EDWARD CASTRONOVA and JOSHUA A.T. FAIRFIELD
THIS
week Apple announced two new pieces of hardware, the iPhone 6 and a
“smartwatch.” But as flashy as they are, neither item is as
groundbreaking as a piece of software that will accompany them: a digital wallet, allowing users to eschew cash and credit cards for a quick swipe of their device at the register.
Apple’s
digital wallet, if widely adopted, could usher in a new era of ease and
convenience. But the really exciting part is the fast-emerging future
that it points toward, in which virtual assets of all sorts —
traditional currencies, but also Bitcoin, airline miles, cellphone
minutes — are interchangeable, opening up enormous purchasing power for
consumers and creating tough challenges for governments around the
world.
Moving
toward a digital wallet for dollars (or yen, or euros) is only a
marginal step forward; throughout history, money’s value has been
largely virtual anyway — think of stocks, or personal lines of credit.
The real change is how the digital wallet technology facilitates the
parallel emergence of virtual purchasing power, like loyalty points.
We
don’t typically think of these as currency, because virtual money has
traditionally been locked down, in the sense that its use was strictly
limited: If you earned points from Amazon, only you could use them, and
you could exchange them for dollars only within the Amazon marketplace.
Meanwhile, up to now, the only currencies you could use everywhere in an
economy were state-issued currencies, like the dollar.
But
that distinction is eroding: After all, the value of a currency lies in
what you can buy with it, not in the fact that a government says it’s
worth something. So if I want to buy a widget, and the only thing I can
use to buy it is Widgetcash, then I am willing to trade dollars or euros
or anything else for Widgetcash. When I buy something with Widgetcash,
it doesn’t go through any bank.
That’s
why a digital wallet, loaded with your dollars, credit and loyalty
points, is such a revolutionary technology — it makes those transfers
and transactions seamless and safe.
Imagine
you want to buy a shirt at Target. Your digital wallet can pay for it
with dollars, your Target points or any other form of purchasing power
that Target accepts. Wave your phone at the cash register, and the shirt
is yours.