My son loves video games. His favorite is something called Fortnite. In the game you run around a digital world trying to shoot and eliminate other players the same way I did as a kid in the woods behind my house with nerf guns. The game is totally free to download and play, yet it is making millions selling its players ways to personalize their avatars.
At a cost ranging from $5 up to $20 you can buy things like clothing, vehicles, and even dance moves that you can use to express your virtual self to others who are also online playing. While none of these things have any impact on the actual game you are attempting to win, it is a perfect example of how our culture is rapidly changing in what we value away from real items we can hold or see, to things that are much more intangible.
We are only at the very beginning of understanding the long–term ramifications of this monumental economic shift. In the future, will we care more about how we look over a computer screen than how we look in real life? If so, perhaps camera filtering software replaces plastic surgery and designer clothing as our desired method of improving our overall appearance. We may soon be more willing to pay big bucks for virtual reality experiences that take place in our living rooms, than we are for trips to real and exotic locations halfway across the world.
Think I’m crazy, or this will never happen? Just a few weeks ago the art world was rocked when a digital JPG image file created by artist Mike Winkelmann sold for 69.3 million dollars. Just to be clear, no physical piece of art was ever created. This price was paid for a 100% digital image file that the individual would then be able to display on a LED screen.
Not only do more of the things we buy only exist as a digital computer file, but the way in which we pay for them is rapidly become exclusively digital as well. Without even realizing it most of us have embraced a nearly 100% digital currency. (no I’m not talking about bitcoin…..yet)
A recent study by the Federal Reserve Bank of San Francisco found that across the US only 7% of transactions over $100 were made with cash in 2019. All others were made through some form of digital transaction. While data doesn’t yet exist for 2020, factoring in things like the pandemic, the recent coin shortage, the rapid growth of payment apps like Paypal, Venmo and Apple Pay and the planned transition by many retailers like Starbucks and Shake Shack to 100% cashless establishments, I expect these numbers to be even higher today.
In reality, most of us have already transitioned away from physical cash as our primary method of payment for goods and services or measuring wealth. We now simply trade numbers on a digital ledger that is maintained by a central banking system and ultimately controlled by various world governments. But what happens if by accident, or on purpose those ledgers become inaccurate? In theory, tomorrow you could wake up and be told your accounts have no balance, and there would be little you could do.
That is why after the financial crises of 2008, as people lost more and more faith in our financial institutions and the governments that over see them, there was a demand for a new form of digital currency outside of the control of any single entity.
This is the idea behind cryptocurrencies like bitcoin. Using something called blockchain technology, in theory, they can remove the middleman of banks who we currently trust to keep the value of everyone’s wealth accurate. It basically does this by having a fully public ledger that millions of people all have access to view. The idea is if everyone can see everything, it becomes impossible for one person or one body to change the numbers artificially.
At the same time bitcoin has a method of limiting the supply of their currency to keep inflation in check. As opposed to our current system that allows power hungry politicians to simply print more money to buy votes, bitcoin uses complex algorithms to control how much currency is produced through a process they call mining.
For the sake of transparency I do not own, nor have I ever personally purchased bitcoin. This article is not an endorsement of it as a wise investment choice. I simply use these cryptocurrencies as an example of how quickly the world of economics is changing.
For some of you all of this can be very exciting, for others it’s probably terrifying. For me it’s a little bit of both. While I don’t know exactly what the future will look like, I do agree with Benjamin Franklin when he said “Change is the only constant in life. One’s ability to adapt to those changes will determine your success in life.”