Fungibility and feasibility

Whatever Bitcoin is, it isn’t cash. Cash is fungible. I’m not saying whether we need e-cash or e-cash fungibility or not, but it’s interesting to consider the ramifications.

Remember that IRS Ruling about Bitcoins being a commodity, so that traders would have to track the buying and selling price of each individual Bitcoin in order to assess their tax liability? No? Here’s a reminder.

For a payments geek, the real lesson from the IRS Bitcoin ruling is that for a currency–or any payment system–to work, its units must be completely fungible.

[From Bitcoin Tax Ruling – Credit Slips]

Fungible (from the Latin “to enjoy”) is a great word. One of my favourites, in fact. In this context, money, it means that all tokens are the same and can be substituted one for another. You owe me a pound. It doesn’t matter _which_ pound coin that you give me. Any will do. Any pound coin can substitute for any other pound coin because they are all the same: no-one can distinguish one pound coin from another. This isn’t true of Bitcoins. They are all different. and because they are all different, their history can be tracked through the blockchain.

The digital currency Bitcoin has a reputation for providing privacy. But a new analysis of the public log of all bitcoin transactions suggests it could be surprisingly easy for a law enforcement agency to identify many users of the currency.

[From Tracing Bitcoins May be Easier Than Criminals Think | MIT Technology Review]

The idea of money that isn’t fungible but that can be tracked, traced and monitored reminds me of Nitipak Samsen’s winning entry in the Consult Hyperion 2011 Future of Money Design Award. Check it out.

Have you ever wondered where the money in your pocket had come from? Who was the previous owner? Who was the owner before that? Might it be a famous celebrity?…

[From Money Trailer – Future of Money]

It is interesting to me to see these different perspectives (Nitipak’s artistic imagination about the bastard child of Facebook and Bitcoin, and the more technical ideas about fungibility) coming together and, to my mind, again illustrates just why the FOM Design Award has become such a popular session in the Tomorrow’s Transactions Forum. We (technologists) need artists to help us to imagine alternative futures.

So. Bitcoin isn’t cash, because cash is fungible. If we want something to be cash, we need to make it fungible. But do we want cash? I’m always ready to listen to informed views. If you do too, then someone you should listen to is Adam Back. He is a brilliant guy. He has already forgotten more about cryptography than I could conceivably learn from now on if I dedicated the entire rest of my career to the topic. His terrific lecture on “Fungibility, Privacy and Identity” delivered to Bitcoin Israel last year is well worth 90 minutes of your time. Get a notepad, a cup of tea, packet of fruit shortcakes and fire up the video.

By the way, I thought you might be interested to know that the finalists in the 2015 Future of Money Design Award will be presented at Consult Hyperion’s 18th annual Tomorrow’s Transactions Forum, which will be held in London on 18th-19th March and the judges (Andy Brown from award sponsors NCR Alaric, Sandra Alzetta of Visa Europe and Gloria Benson of Consult Hyperion) will select this year’s winner. You’d be mad to miss it, so check out #ttforum15 and see how it is coming along.

Thanks to the incredible generosity of our sponsors (Worldpay, Visa Europe, Vocalink, NCR Alaric and Olswang) to tickets are virtually free at £550 + VAT. The Forum is limited to 100 delegates as always, so run (don’t walk) over to https://payprocess.chyp.com/ttforum/ to secure your place right away. And yes, I will take Bitcoin if you don’t want your spouse to see it on a credit card statement at the end of the month.