The Royal Canadian Mint, which casts coins for the Canadian federal government, has started a pilot test of its MintChip digital currency. Through these tests, the Mint must make clear what this new currency is and what it is not.
Many news outlets have called MintChip a cryptocurrency like Bitcoin, but that's wrong, the Mint says. MintChip is a secure protocol for transferring digital value nearly instantly. The digital value, stored in a kind of cloud-based prepaid account can be denominated in any number of recognized currencies in the future.
"The Mint never uses the term cryptocurrency; only the media does and mistakenly so when it comes to MintChip," says Alexandre Reeves, a spokesperson with Royal Canadian Mint. Cryptocurrency is defined as a peer-to-peer decentralized digital currency that relies on the principles of cryptography.
MintChip is designed to be used in stores or online alongside conventional payment methods.
We've been "looking at how people are transacting today and how it's changed over the last 10 years, watching electronic currencies evolving," says Marc Brule, chief emerging payments officer at the Mint.
MintChip is trying to reduce the cost of making low-value (under $10) transactions, Brule says. "Today unless you're iTunes it's very difficult to put some content on the internet and use e-commerce when trying to price products," he says.
Because of the fees associated with credit card transactionsbetween 2% and 5%, plus a base feemerchants hesitate to accept card payments for low value transactions. Apple's iTunes digital media store addresses this problem by aggregating low-value sales to be processed later as a single transaction.
The Mint plans on charging a transaction fee to merchants, although instead of a percentage of each transaction, its fee will be a fixed amount, "probably pennies," Brule says.
In April 2012, the Royal Canadian Mint hosted the MintChip Challenge, an invitation to software developers to compete at creating digital payments applications geared towards bringing the country's financial system into the digital age.
Currently, Mint employees are testing MintChip in two of the Mint's cafeterias with customized Ingenico point of sale terminals developed for the pilot. Employees are also encouraged to use MintChip's Near Field Communication-based person-to-person payments function by tapping their phones together.
Users can put value in the MintChip account by using cash or credit cards as funding sources. MintChip has similar qualities to cash in that transactions are irreversible, so merchants won't have to handle chargebacks.
Bitcoin has many of these qualities and is in use today around the globe, but Bitcoin's reputation has been dealt numerous setbacks by the business, security and legal problems plaguing some of its most prominent advocates. The value of Bitcoin has also swung wildly over the past year.
Because MintChip is backed by a government's hard currency, it will appeal to users worried about the volatility of Bitcoin and other cryptocurrency, Brule says. Plus MintChip is designed to be much easier to exchange for cash.
Bitcoin businesses have had trouble getting banking relationships, especially in the U.S. While the choke has recently loosened with exchanges such as Coinbase and Coinmkt acquiring bank accounts, some banks set hard limits for Bitcoin businesses to abide by.
On Feb. 26, Kraken, a digital currency exchange run by Payward Inc., suspended U.S. dollar deposits and "all pending USD withdrawals not already in transit are being cancelled," according a post by krakensupport on the Reddit discussion site.
"Many USD withdrawals have been delayed beyond a limit we can accept, and it reflects poorly on our service," the post states. "Rather than continue to disappoint, we've decided to suspend USD deposits until a more robust banking partner is acquired."
The Mint is considered a crown corporation and the sole shareholder of the Canadian federal government. It also creates the coinage for on average between 10 and 15 countries per year, including Singapore and the Philippines in 2014.
The Mint also makes collector coins and has a bullion refinery.
While the MintChip technology is still in beta testing, the Canadian government is in discussions with the Mint about possible next steps, says Brule.
Brule says in the future, the Mint would want to support the development of a MintChip equivalent for other country's currencies. Especially in parts of Africa, where financial services are limited but most adults have mobile phones, digital methods of payment are attractive opportunities.