E-money raises privacy concerns

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 17 May 2012

Pockets of cashless societies are showing up around the world, with Sweden, for example, having almost completely done away with paper money, says Jon Matonis, MD of the Lydia Group.

The goals of e-money's proponents are a paperless society, no grey economy and no traceless transactions.

Jon Matonis, MD of the Lydia Group

E-money is not regular cash going online, but is rather the concept of a digital bearer certificate in a cashless world, explains Matonis, speaking yesterday at ITWeb's Security Summit. He says it works the same way as hard currency, but is electronic, and transactions cannot be reversed.

Matonis says e-money almost falls into the same paradigm as “good versus evil”, as it is being promoted globally, but there are security concerns. The goals of its proponents are a paperless society, no grey economy and no traceless transactions, he says.

However, Matonis believes the world is at a crossroads, because electronic money can be harmful to privacy and liberty as all deals can be traced. He says cryptography needs to be used to protect people, otherwise the globe could end up living in a George Orwell-type future, as described in his novel, 1984.

Currently, the situation can go either way and there is still time to make those decisions, says Matonis.

Worrying factors

Matonis says the concerns around electronic currency include that there is full traceability of the transaction depending on the electronic network that trades the currency. The grey - or informal - economy will also be wiped out and there will be absolute near efficiency in tax collection.

The informal economy currently accounts for about $10 trillion globally, which would make it the world's second-largest economy, says Matonis.

An example of decentralised electronic currency is BitCoin, which was launched in January 2009 by Satoshi Nakamoto, although there are doubts as to whether this is his real name, says Matonis.

BitCoin currently trades at about $5 per unit and, so far, about nine million “coins” have been “mined”, says Matonis. He says the size of the economy is currently about $43 million, but is limited, as only 21 000 “coins” can be mined.

The solution offers applications, wallets and merchant processing. It works through a decentralised network of exchanges and, like any new technology, showed up first in the adult entertainment and gaming space, says Matonis.

If a state wanted to take out the currency, it would only cost $43 million, although buying the processing power would not be that cheap, as it is the largest distributed network globally, says Matonis.