So far, the world of digital currencies has been a little underground. Second Life’s currency the Linden dollar has the money supply of a small country and the Chinese government expressed concern that the wide use of a particular virtual currency might
destabilize the Yuan.
GoldMoney is an interesting one which stores over $1billion worth of allocated precious metals on behalf of customers who are using their holdings as an investment as well as being able to make P2P payments to other Goldmoney users with digital Gold.
There are some interesting dynamics at play here. The X generation may be just as happy using a digital currency as a form of money compared to any central bank issued money because this is what they’ve grown up with. Then there are the Gold bugs who only
see asset backed money as the real thing and view central bank issued fiat currency as a bit of a ponzi scheme.
But how could people ever use these alternative digital currencies to pay for things normally in the real world? I really don’t see this as a problem as long as there is a market to convert the digital currency into a real world currency and vice versa.
You could even have a debit card/prepaid card that is linked up to your virtual currency account.
Needless to say there are huge credibility issues with virtual currencies, but don’t forget that GoldMoney’s success is built on people’s loss of confidence in the real world currency system.
Do I think that a virtual currency could ever become widely used? This will depend mostly on the stability of the financial system. An unstable currency system with inflationary problems could be the perfect environment for alternative currencies to develop.
But surely the central banks are too sensible to allow this to happen!!