This is about politics, not technology
[Dave Birch] At the EPCA Summit in the very pleasant Palazzo Altieri in Rome, Donald Norman from Bitcoin Consultancy gave a talk explaining Bitcoin to the assembled bankers. Now, in my mind, and I've said this before, one of the problems I find in discussing Bitcoin is that it jumbles two things together.
As I have explained previously, Bitcoin is not money. Bitcoin is a protocol.[From BLOGDIAL » Blog Archive » Why the quoted price of Bitcoin doesn’t matter]
And it's not an anonymous protocol either, but nevertheless one of Donald's points was that anonymity (and irrevocability) are key features of Bitcoin. We have to recognise that these are real issues, and I want to explore one of them: anonymity.
A cashless society is also a society where there is no longer any anonymity. (Have you ever tried to give someone some “unmarked” 1’s and 0’s when you’re making payments online?) There are understandably concerns about privacy, especially when payments are made through social networks. At the end of the day, however, there is a direct correlation between becoming a cashless society and becoming a digitally innovative society.[From Don’t show me the money: Why eliminating cash may be the secret to prosperity - Ideas@Innovations - The Washington Post]
A society without anonymity. This simply isn't true, whether you use Bitcoin or not. While Bitcoin isn't especially anonymous, it is entirely possible to design payment systems that are using well-known cryptographic techniques. But if you did decide to create the bastard child of DigiCash and ToR to deliver an unconditionally anonymous and irrevocable electronic cash system, I've got no reason to believe that anyone would actually use it. Or enough people to make it viable at least.
This issue of anonymity is entirely different to the issue of bits vs. atoms. It's up to society to set the privacy dial where they want it to be and then it's up to us technologists to implement the systems that respond to that dial. If society wants unconditionally anonymous electronic money then we can implement it for them. If it wants unconditionally absonymous electronic money then we can implement that too.
Whether it does so is a political question, not a technological one. You can design payment systems that protect against fraud and yet preserve anonymity, just as you can design open systems or those that keep your identity secret unless the authorities demand that it be revealed.
When it comes to trading convenience against privacy, most people seem to back convenience every time. With cash, however, it might be different. The more the state intrudes into electronic cash, the more it encourages inefficient notes and coin.[From Digital money: The end of the cash era | The Economist]
So where should we set the dial? Naturally, I favour conditionally traceable (i.e., pseudonymous) electronic money as the appropriate balance but I can understand why other people might set the dial in different positions. Except for one, which is anonymity.
Paper, especially cash, will continue its appeal for those who deeply mistrust the traceability of electronic transactions, poorer consumers with limited access to electronic means of value exchange and, of course, criminals.[From Payment Methods Never Die, and May Not Fade Away - PaymentsJournal]
Cash isn't good for the excluded. Not good at all. People trapped in a cash economy are the people who pay the highest transaction costs, the people who get robbed and ripped off, the people who have no comeback when they lose their wallet, the people who can't take advantage of a good deal online. If there is one group of people who most definitely do not benefit from anonymous, untraceable cash, then it is the poor.
Cash-based economies harm the poor by heightening the risks they face when carrying money and fueling government corruption and inefficiency. So why not eliminate cash altogether? When governments electronically transfer money to beneficiaries of public benefit programs, it decreases administrative costs, diverts more of the money budgeted for the programs to the poor, and reduces the chance that recipients will be robbed.[From 5 Ways Jim Yong Kim Can Save the World Bank - By Vishnu Sridharan | Foreign Policy]
Moving away from paper notes and coins and toward a digital currency is a no-brainer, at least when it comes to cost and efficiency. But when it comes to privacy and freedom, cash can't be beat. We must ensure that we protect our civil liberties by preserving some untraceable payment method.[From A Shift Toward Digital Currency - Room for Debate - NYTimes.com]
Well… no. We don't want an untraceable payment method, we want a private payment method. So let's decouple the discussion about the dial from the discussion about the digits. I don't think I want to live in a society that has unconditionally untraceable payments. I want the police to be able to track down criminals, but of course there is a balance because I don't want the police, the newspapers or my neighbours to be able to snoop around in my bank account just because they feel like it. I genuinely don't think that the policymakers understand the range or sophistication of the technologies we have at our disposal to create the kind of electronic cash that society wants. So, please, let's have a sensible debate about where to set the dial. Then you can leave the rest up to us.
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