Mercator Blog

Canada’s MintChip Brings Legitimacy to Digital Currencies
Date: February 5, 2014
Research Team
In mid-January, the Royal Canadian Mint announced that it would begin closed beta testing of MintChip, its digital currency that has been in development since 2012. According to the Mint, the digital currency will eventually provide consumers a secure, private, and timely means of paying for low-cost transactions.

The MintChip announcement comes at a pivotal point for digital currencies around the world. The rapid increase in the global popularity of rival digital currency Bitcoin has left regulators from Malaysia to Singapore to Norway scrambling to determine the most effective means of regulating digital currencies. Some countries, such as Germany, have announced they will treat the currency as an asset and thus taxable under their national tax codes, while others, like China, are simply prohibiting influential domestic payment industry participants from accepting or processing Bitcoin transactions. India has yet to determine its approach to regulating Bitcoin, but the Reserve Bank of India has made it clear that consumers approach and use bitcoins at their own risk and without any consumer safeguards.

Unlike bitcoins and other international digital currencies, MintChip maintains an unparalleled level of legitimacy. Since the currency is backed by the full faith and standing of the Canadian Government, consumers, retailers, and financial institutions can safely accept and use MintChip with the knowledge that its value will not dramatically shift overnight and that regulatory intervention is unlikely. The significance of this added legitimacy should not be understated and it greatly improves the likelihood that the currency will develop a broad base of participating members when it is eventually rolled out nationwide. This is further evidenced by the announcement that an Ingenico terminal (the IWL 220) has already been enabled to accept MintChip.

However, it is worth noting that unlike Bitcoin and other digital currencies, MintChip has a physical component (the “chip”) that is required to facilitate a transaction (something that Bitcoin does not have to deal with). As a result, unless terminals are upgraded or are already capable of handling the currency, MintChip will struggle to gain traction among consumers and other participating users.

While it will take time to unfold, the issue of ensuring that compliant terminals are in place could slow the deployment of the currency across Canada. Nonetheless, MintChip’s potential success could in turn develop into a blueprint for other national digital currencies around the world to replicate. Although replication globally depend on MintChip’s potential success, its announcement highlights that governments are seriously considering digital currencies as a viable payment method for low-cost transactions.

Traditionally, low-cost transactions have been dominated by the consumer use of cash. This continues to be the case, as evidenced by 79% of consumers reporting that cash was most convenient for small-ticket items in Mercator Advisory Group’s 2013 CustomerMonitor Survey Series, an online survey of 3,000 adults in United States on a range of payment topics. (For more information on consumer cash use in the United States as well as other consumer payment topics, see Mercator Advisory Group’s CustomerMonitor Survey Series library and Insight Report titled Consumers and Debit 2013: A Shift to Alternative Payments, released in December 2013. As a result, MintChip may not only be adding legitimacy to digital currencies today but may be a glimpse at the long-term future of cash.

Follow Tristan on Twitter @THugoWebb.