We live in a world in which more and more things happen electronically. It is now possible to buy all your clothes online, all your books, all your food, and have them all delivered to you. Online communication allows us to communicate with almost anyone on the planet, anywhere, at any time. Someone who had fallen asleep 30 years ago would be amazed at how different things are. That extends to the realm of payments as well. Millions of people now access their bank accounts online, transferring money between accounts and paying off credit cards. Payment services such as PayPal are used by more and more merchants. Cash is being displaced by credit and debit cards, which are themselves beginning to be displaced by new digital currencies and payment systems such as Bitcoin, Samsung Pay, and Apple Pay. A world in which everything is transacted digitally may not be far off. But will this digital revolution enable a dream world for consumers or a never-ending nightmare?

Digital currencies, electronic payments, and online financial services are turning the monetary, financial, and banking systems on their heads. But despite all the advances brought about by the digital revolution, there are still quite a few drawbacks. The most obvious is that it is reliant on electricity. One major hurricane knocking out power, a mid-summer brownout, or a hacker attack on the power grid could bring commerce to a halt. With cash, transactions are still possible. With digital payments, civilization comes to an end until power is restored. Unless you have food stored or goods with which to barter, you're out of luck. Just imagine a city like New York with no power and no way to buy or sell anything. It won't be pretty. But those instances will hopefully be few and far between. There are other, more important problems with digital currencies and payments.

With digital currencies such as Bitcoin, there is the problem that they are created out of thin air. One bitcoin represents the successful completion of a cryptographic puzzle, but all that means is that some computing power was used up to create a unique electronic file. That's all it is, just a series of ones and zeros. There is nothing tangible about Bitcoin and, indeed, if you lose the hard drive on which you stored your bitcoins, those bitcoins are lost forever. Commodity money developed for a reason, it was something that, while able to be used as money, nonetheless could also be used. Gold and silver could be made into jewelry, cows and goats could be eaten, cigarettes could be smoked. Even paper money has another use, as toilet paper, note paper, or to be burned in a furnace or fireplace to produce heat. Money developed not because someone came up with the idea to use something as "money" but because one commodity out of the many hundreds and thousands desired by people had such universal appeal that it was able to act as a medium of exchange. Money is a spontaneous creation resulting from the interactions of consumers within a free market, not something created by a single entity.

Commodity monies also have finite limits, some more than others, but they cannot be reproduced infinitely. Not so with digital currencies. Bitcoin currently has a limit to the number of bitcoins that can be created, but who is to say that that can't change in the future when developers in the Bitcoin community fall prey to the temptation to create more money, believing that more money is the key to greater wealth? We're already seeing debate over the size of the blockchain, with some developers hoping to create a new Bitcoin branch with larger blockchain sizes. With digital currencies you are at the mercy of the currency's creator or controller, hoping that they don't take advantage of their ability as the monetary authority to defraud the public through creating additional monetary units. It was problematic when central banks created more paper money than was backed by gold or silver, it is problematic when banks create digital bank balances that they use to purchase assets through quantitative easing, and it will be problematic when future digital currencies are manipulated to benefit their issuers at the expense of everyone else.