Dave Gonigam

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Evolution in Global Finance

Check this out – Google’s upcoming rollout of Gbuy, their answer to Paypal, could be very interesting on a big picture scale. 

A private digital currency sounds elegant, but the logistics are incredibly hairy. The scope and scale of technological requirements, in terms of safety, verification, widespread acceptance etc., is pretty daunting. Just think of how Byzantine our trial-and-error global payments system is, and how long it’s taken the U.S. banking system to evolve. It was only relatively recently, I think, that banks moved from physical transport of paper checks to instant digital transmission (They did this grudgingly, of course, because instant transmission meant giving up the float). 

But now things are speeding up. Paypal has been the only real digital payments option up until now, and as such, it has been a fat and lethargic cash cow for ebay, providing almost a quarter of ebay’s revenues with questionable customer service (see http://www.paypalsucks.com). With the introduction of Google’s offering, Gbuy, we suddenly have competition in the digital payments space, which means the innovation efforts speed up. Google has the brains and the clout to make headway on promising business models with extremely thorny technical issues, like micropayments.

Imagine if independent musicians could sell songs on their own Web site for $1.99, or writers could sell essays for $3.00, or news agencies could sell stories for $0.50. Up until now, only big biz like Wall Street Journal or Apple or the New York Times could handle the back-end for this, let alone true micropayments of, say, $0.25 or below. But Google could roll out a plug and play micropayments system for everyone (Needless to say, such a development could easily touch on Agora’s business model). 

The more comfortable people get with micropayments, and the more innovative and trustworthy digital payment systems become, the easier it becomes to make the psychological and logistical transition toward digitized/privatized currency. At some point, an enterprising small country will switch to fully digital payments for all its government business. From there, it may be just a matter of time before people start doing transactions in “stuff.” I’ll pay for your shipment of bananas in crudebucks, with each crudebuck worth .0142 barrels at current prices. Goldbucks, of course, being the most widely desirable scrip. 

The takeaway from this rambling is that private enterprise developments – first Paypal, now Gbuy, not to mention Everbank and E-gold, etc. – are sowing the logistical seeds for the next evolutionary step in the global financial system.

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