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Reviewed By lobobear - Rating : 5.0

In part seven of this series we ended with three types of money on the table: gold (and other precious metals), fiat money (paper notes or data entries on a cyber ledger) backed by a government entity, and bitcoins backed by trust in no one other than the users.  In all cases, value is accrued by perception and is essential for timely trade (in exchange for goods and services). And we use government controlled banking systems to facilitate the process except when the monetary medium is physical (paper money or gold) or non-government bits and bytes (bitcoins).

As an individual or a business we engage less and less in cash transactions for trade. Your paycheck may be a direct deposit to your bank account, a cyber transaction for delivered services. You use debit and credit cards resulting in more and more cyber transactions. You manage your account(s) on-line, having direct, but limited, interaction with your cyber ledger, directing payments to others but not creating new money. And you can still use paper money by depositing or writing checks or withdrawing fiat (paper) money.  Of course, these activities add to your cyber ledger maintained by the bank.  If you make a transaction of $10,000.00 or more, it is reported to the government with your identifying data attached (bitcoins anyone?). Also, while all of this is going on, you pay fees (another tax?) to support the system.


Banks are businesses too and engage in trade also.  They provide services such as ledger accounting; loan management, both yours and theirs; credit cards (another loan); and cash machines so you can get limited fiat money assuming you have a positive balance in your digital account and the machine works. If you have a smart phone, you can access your account(s) using your web browser, assuming you can afford the data and service is available. If you only have voice and texting, you can still do it using M-Pesa, assuming the bank offers it.  As of 2017, 20 million people in Kenya use M-Pesa.


But what if the banks close their doors physically and on-line for six months? How will we engage in trade? “Can’t happen” you say. Well it did happen in Ireland on May 4, 1970, and the banks were closed until November. People began writing checks in the process of trade and trading checks.  With a population of 2.957 million, it worked.  Essentially, checks became a form of money and it worked because people trusted each other and, in general, businesses were small. What caused the closure? The banks were in dispute with their employees.


Could it happen today? Certainly not the same way, but if banks closed in the US, a population of 330 million people might be in desperate straits. Closing for a day?  Not much impact. Close for a week and it becomes problematic. Close for six months and a disaster emerges.


What might cause it? Direct hacking attacks to steal money is unlikely because such attacks are relatively small and not of much value to the hacker if the entire system goes down. But what if the hacker is another country executing a non-lethal denial of service attack to agitate the population of the target country? How big does it have to become to demand retaliation if the perpetrating country cannot be positively identified?


In June 2010, the Stuxnet computer worm was found and slowly it became clear it was targeting Iran’s nuclear facilities.  On August 15, 2012, Saudi Aramco, a $455 billion Saudi Arabian company, was cyber attacked by malware called Shamoon, crippling it for months.  The attacker was an Iranian group called Cutting Sword of Justice.


Maybe bitcoin does make sense or maybe not. On February 7, 2014, a bitcoin exchange company filed for bankruptcy after hackers exploited a weakness in its system to steal $460 million (in bitcoins) and $27.4 million from its bank account cyber ledger. Who is responsible for bitcoin security?


Money it absolutely essential for the exchange of value in trade and our lifestyles have picked up pace significantly in large part because of cyber advances, be they electronic ledgers or communication.  We have to have it now, or at least in two days. Perhaps we should stock up on gold or silver. But will is work if our electronic systems fail us either because of black hat individual hackers or black hat nation-state enemies? Probably not because, in our day to day trade, items are of much less value than a troy ounce of even ten carat gold.  How many paper checks are in your wallet?


Should you worry about it? No. Should you monitor your balance sheet in cyberspace? Yes. Should you take your significant other out to dinner while the systems are functional? Absolutely.

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 Posted on : March 27, 2018
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