New research suggests that it costs the average SME more than £3,600 per year just to handle cash, and – thanks to Bitcoin and other innovations – thoughts of a cashless society seem to be stirring again. But what would a cashless society look like? And how will we get there?
The social anthropologist and money historian Jack Weatherford said: "The electronic money world looks much more like the neolithic world economy before the invention of money than it looks like the market as we have known it in the past few hundred years."
What Weatherford means is that ancient society worked on a shared memory of mutual cross-obligations, continuously adjusted and revised. In the clan, everyone knew who owed what and to whom, a structure that does not scale beyond the kinship group. Once clans form into tribes and tribes move into cities, the shared memory is no longer sufficient. We need intermediaries to manage, and money is one of them. If, however, technology gives us back that shared memory, then we don't need intermediaries to enable transactions. It becomes what some people call a "reputation economy".
The signals for change are visible. The son of a friend of mine decided earlier this year not to go to college. Instead, he is already hard at paid work as a programmer, having made the calculation that shared memory will provide an effective means to gather valuable and accurate reputational information that used to be too expensive to gather. Such intermediaries provide what Sam Lessin, Facebook's head of identity products, calls "hacks" and what Rory Sutherland, the vice chairman of Ogilvy & Mather UK, calls "patches".
Using patches such as college degrees and credit ratings instead of real, immediate reputational data is just not good enough in our connected world, which is why there are companies now looking at using the social graph as an alternative.
This way of looking at the existing business models around identity (that is, as hacks to deal with incomplete authentication, attributes and reputation data) provides a way of understanding that young man's choice. Social capital (the result of computations across the social graph) is now accessible and usable at the transactional level. Proxies such as high-school diplomas and glossy CVs are being replaced by social capital because it is a more efficient form of the kind of memory we need to make transactions work.
You can see exactly where this headed if you think about the way that we already use LinkedIn, Twitter and Quora. In the old world, I would use the social hack of finding out which university your degree came from and whether you had paid back a car loan a decade ago as a sort of proxy for things I wanted to know about you. But I no longer need to do that because from the social graph I can find out if you are smart, in stable employment, a team player, an expert on identity management, or whatever.
With that kind of transactional social capital in place, delivered by the combination of mobile phones and social networks, commerce will be reinvented.
That social capital will be deployed in smaller and more commonplace transactions, not only getting a job or buying a house. In the long run there will be no need for a single medium of exchange, no need for fiat currency.
Identity substitutes for money. The process has already started. When I go into Waitrose and pay with my John Lewis MasterCard, it's an identity transaction.
The terminal in Waitrose establishes that I have access to a line of credit that means that Waitrose will be paid. When Waitrose can measure my social capital, they may bypass intermediaries such as card schemes and just collect my IOU. When managing reputation is efficient and implicit, even the pound coin becomes uneconomic and so does everything that goes with it: the cash register, the ATM, the security guards. If you do not need cash registers and ATMs then the costs and complexity associated with handling currencies collapse. All transactions then become identity transactions.
This is inevitable because the nature of identity is changing, both the bureaucratic notion of identity that emerged from 19th and 20th century industrial society and urban anonymity, and the pre-industrial notion of identity that builds on extended family and clan.
This "social identity" is the basis for a reputation economy, an economy based on trust. It will be reputation rather than regulation that will animate trust in economic exchange, and that social graph, the network of our social identities, will be the nexus of commerce, administration and interaction.
