Royal Canadian Mint to create digital currency

mintchipThe Royal Canadian Mint wants to get rid of pocket change — and it’s enlisting hacker-types for help.

Less than a week after the government announced the penny’s impending death, the Mint quietly unveiled its digital currency called MintChip.

Still in the research and development phase, MintChip will ultimately let people pay each other directly using smartphones, USB sticks, computers, tablets and clouds. The digital currency will be anonymous and good for small transactions — just like cash, the Mint says.

To make sure its technology meets the gold standard in a world where digital transactions are gaining steam, the Mint is holding a contest for software developers to create applications using the MintChip.

The old-fashioned prize? Solid gold wafers and coins worth about $50,000.

It’s such an unusual move from the crown corporation, which has been in the coin-making business for more than 100 years, that Hacker News questioned whether it was an “elaborate hoax.”

It’s not, the Mint’s chief financial officer Marc Brûlé said Tuesday.

Commerce is changing and the Mint has always been innovative, Brûlé said. (For instance, it did an initial public offering of exchange traded receipts of its gold holdings last year.)

“There’s been a very huge growing digital economy that is really going to be fueled by smartphones and mobile being the next big thing,” he said.

Despite the variety of payment options, he said there are “still no cost effective electronic solutions” for low value transactions that can be used regardless of a person’s age or credit standing.

MintChip, a secure microchip, will be able to do this by letting people transfer small amounts of money (for an iTunes song or a newspaper) with no personal information attached to it, he said.

The Mint’s move into the digital market is a reflection the competitive payments industry, Interac spokeswoman Caroline Hubberstey said.

Despite a December 2011 government report claiming Canada’s payments system is “outdated” and “has simply not evolved,” Hubberstey said it the industry is “highly competitive and rapidly changing.”

Interac pegs the value of small cash and coin transactions (under $20) at $90 billion, and companies big and small want a share of that market as it turns digital, Hubberstey said.

“Players you wouldn’t have thought of before” are looking for ways to get into the market of secure transactions, she said.

“You’re seeing competitors that have been in the space in a while and new competitors looking at the payments market as an opportunity.”

The payments industry’s last major shake happened in the mid-90s when debit card use took off. As more smartphones adopt Near Field Communication (NFC) technology, which lets users hover their phones over NFC-enabled devices to make payments, mobile payments are expected to soar.

Interac, Mastercard and Visa already have contactless cards that use near field communication (NFC) chips for small payments at gas stations and grocery stores.

PayPal, Google and Visa have introduced digital wallets where consumers control all their cashless payments from one place. Companies Square and Payfirma let people accept credit card payments on their smartphones.

The difference with MintChip is it doesn’t plan to link to a person’s bank account or credit card information. And unlike BitCoin, a peer-to-peer hosted digital currency with a fluctuating value, MintChip is simply a new way to exchange Canadian dollars. Plus, it’s backed by the Canadian government.

It’s still too early for specifics such as how the Mint will make a profit from this, how it will prevent hackers from stealing cash, whether the money is anyway traceable or who exactly will load a chip with money, but Brûlé said the response to the contest has been tremendous.

Developers may have been skeptical about MintChip, but the 500 contest spots were filled in just four days.