Is this the end of banking and money as we know it?

Following compelling evidence presented in a recent Bank of England Report, it is highly likely that by the year 2020, businesses will be transacting via alternative currencies that operate outside the current banking system.

A case in point is the Dotcoza experiment, conducted at the turn of the new millennium, where a young South African man (Dotcoza) locked himself away in a house with nothing other than the clothes on his back and a computer connected to the fledging Internet. He was given some money to spend, whereby everything from food to household utensils needed to be purchased online. This experiment sought to answer the question: Can man live on the Internet alone? And 15 years later, living off the internet has become an accepted way of life for most of us.

Is it possible to live without money?

Let’s go back to the 2008 stock market crash, which plunged the world into an economic catastrophe. Although the cause of this is still being debated by experts, one thing holds true for every person from bankers to billionaires: the crash centred around this thing we call money.

If we look at it from the perspective of the man in the street, bank money is a whirlpool of emotion, evoking cycle after cycle of diminishing spending power and mounting debt. With this in mind – and with consumers becoming more empowered and Internet active — there is a definite economic place for alternative currencies that operate outside of the banking grid.

The emergence of alternative currencies

Perhaps the problem is not economic per se, but rather in the way that money is created? With alternative currencies already operating outside of the traditional banking system – a whole new world could emerge to better serve and benefit the consumer. We have already seen disruptive global businesses such as Uber, Airbnb and Yahoo Finance rock the establishment. The latest shake-up in the telecommunications sphere is now the Whatsapp release of its free-calling service – a development that will undoubtedly impact the pockets of cell phone giants.

Massive changes are occurring all around us, yet the global monetary system is still operating as it did centuries ago in terms of holding the monopoly on money creation. As numerous bank scandals shake the world, the latest being the 28-million pound HSBC fine, and as more individuals question the viability of this system – my guess is that alternative currencies are set to disrupt the status quo.

What kind of alternative currencies are we talking about?

I’d like to unpack three possible forms of alternative currencies:

Currency 1: The blockchain

The blockchain is the technology behind Bitcoin, a method of tracking, securing and dispensing alternative currencies securely via the Internet. Unlike bank money, these currencies are not debt based. In other words, they are not loaned into existence and therefore they carry no interest and no obligation on their origination.

The largest example, Bitcoin, is being traded among a growing number of merchants. IBtimes reported that over 100,000 merchants have accepted bitcoin worldwide, and coupled with the news that PayPal now facilitates Bitcoin transactions – blockchain currencies are going to expand exponentially. There are already over 200 other currencies, called alt-coins, in circulation.

Currency 2: Decentralised local currencies

Berkshares, Ithica Hours and the Community Exchange System are examples of local communities who have created their own currencies and are actively being used in parallel to the banking system.

Instead of waiting for government budgets to trickle down to the man on the street, local currencies of this nature are cutting through the bureaucratic rhetoric. Communities are literally creating their own funding mechanisms to improve infrastructures such as road repairs, restoring buildings and even planting food gardens. In other words, communities are creating their own currencies and providing new jobs without external government financing. It is a break-through concept that could significantly and quickly alleviate poverty.

Currency 3: Anything with a store of value
In theory, anything that has a store of perceived value with the ability to be traded quickly and easily, could be used as money. Airtime is already being traded in some African countries and children are using currencies (created within their online games) called ‘gems’ which are earned and spent inside the game.

Now here is a possible game-changer: what if gems were traded across gaming platforms, resulting in teenagers paying for services like homework or purchasing second hand clothes using gems? Could the banking system as we know it be disrupted by currencies generated from computer games? Too outrageous and impossible to be taken seriously, many would laugh this off as completely inconceivable. Well, it just so happens that this is already happening. Gold Farming, an online gaming method whereby gamers literally make a full time living from converting game coins into currency, is taking shape at a rapid pace!

Where to from here?
Returning to Dotcoza (and his faithful companion dogcoza) – he truly believed that the Internet would change the world. He stuck his neck out, completed the experiment, and proved that he was right. Today, we are seeing off-the-grid behaviour being practiced by more and more individuals. People are living off the energy grid by driving electric cars and building solar panelled houses. They are living off the food grid by planting their own food and with community gardens. And people are even dropping off the pharmaceutical medicine grid as alternative medications become more widespread and health costs soar.

It is time that government officials and finance executives face reality and ask themselves a most terrifying question: Are people going to start dropping off the banking grid? I am not sure if I am personally ready to toss away my bank account and take on the challenge of becoming the dotcoza of banking just yet. I would, however, pay good money to see this experiment enacted and happily cheer as a bitcoza attempted to pull it off.