WE’VE COME A LONG WAY IN WHAT THE NORTH COUNTRY CONSIDERS A CURRENCY, BUT IN SOME WAYS NOTHING HAS CHANGED.

This issue has highlighted the obvious importance of money in our local economy, and the new and innovative ways our local institutions handle money. The one constant is that we all use money for the same thing. We offer something to a willing marketplace, be it our labor, our skills, our intellectual property, or some other form of property. In return we earn money which allows us to purchase something of value from someone else.

While the traditional use of money has gone on in a similar manner for centuries, today what we consider money is changing.

Anything that is mutually recognizable as valuable is a candidate for money. So long as you believe you are receiving something of value in exchange for what you offer and can, in turn, purchase something else you want for the currency offered you, then you’ve engaged in a monetary exchange.

The only difference between money and barter is that this traded commodity is something we may not wish to consume ourselves, but is instead something we believe we can exchange for something else we really want.

At one time, these traded commodities may have been beaver pelts, trinkets or gold. An entire presidential election was once waged over whether our nation should be exchanging gold or silver. Two hundred years ago, the currency may have been bills created by our local banks. Indeed, today the most common form of money is not even a currency. Rather, it is the purchasing power we have in our checking accounts from which we can draw through checks, electronic fund transfers, online payments, etc.

In fact, only about one in ten dollars in our nation’s money supply is actually cash. The rest of it is purchasing power created by banks and the Federal Reserve System.

That is changing rapidly. With the creation of cryptocurrencies, we are finding that a growing number of purchases are now denominated in Bitcoin and other digital money substitutes. People, even locally, are paid and spend in Bitcoin. Plattsburgh was once ground zero in the efforts of the cryptocurrency industry to “mine” more money. Major banks are rolling out deposit facilities that will be entirely denominated in cryptocurrency, and even the European Central Bank, the Bank of China, and the United States Federal Reserve are getting into the act.

A digital exchange economy seems new and something out of Brave New World, but it is probably more akin to a gold economy from the 19th century. Items are priced in the cryptocurrency, but its value compared to the dollar fluctuates just as does the price of gold. As I write this, a Bitcoin is worth about $50,000, just as an ounce of gold is worth $1,800.

It is true that the price of a Bitcoin is much more variable than the price of gold, but for the same reasons. People who purchase or sell Bitcoin use it not only for its value in exchange, but also as a store of value and a speculative commodity. As attention and interest in Bitcoin rises, as it has of late, so does its value.

As the price of Bitcoin rises, hundreds of thousands more machines crank up to generate them. These Bitcoins are “mined” by having millions of machines churn every ten minutes to see which of them win the lottery of having successfully mined the most recent coin. As more miners come on line, attracted by a high Bitcoin price, the lottery odds become more daunting, just as the odds of winning a traditional lottery fall as the jackpot increases.

This lottery approach is wasteful because each of these millions of competing machines is dissipating on average about the same amount of heat as the space heater under my desk warming my toes. The waste heat in supporting this mining method consumes about two-three percent of the world’s electricity, with the intendent greenhouse gases mining creates through wasteful production or through demand that denies sustainable power for more essential purposes.

Don’t get me wrong, though. I believe we will move toward digital currencies at a fast pace over this decade, and that is a good thing. Better yet is that much of the essential digital encoding that these competing machines currently perform will be done with just a handful of highly trusted machines administered by Central Banks and large institutions. We will all soon have the convenience of digital currencies without the speculation and energy waste, through our full faith and credit of the Federal Reserve and our community banks.

There will still be a cottage industry for cryptocurrency, especially for the traders in illicit goods and services who prefer to not be under the watchful eye of regulators. But, increasingly, banks will soon begin to incorporate digital currencies into their portfolio of financial innovations, which include Automatic Teller Machines, automatic cash dispensers, Electronic Fund Transfers, instant check clearing, and even robotic branches.

I chatted with someone today who noted she had not been in a bank branch in perhaps fifteen years. She is not much younger than I am. Many young people have never been in a bank. Times are a changin’, but the essential role of money has not, even if how we access and interact with it has, is, and will. It is a wooly new world out there, and we’d best stay on our toes, but innovate it will, whether we like it or not.

Dr. Colin Read is a professor of economics and finance at SUNY Plattsburgh’s School of Business & Economics.