Tony Howlett gave a presentation in Defcon 16 about the “cashless society”; why, what it means and likely developments. It’s a very interesting read, especially the point made about card payments - what happens when there’s no electricity?

Indeed, suppose there is a major outage of communications, electricity or both. The reason could be a disaster, such as a hurricane, an earthquake, or a man-made event such as a terror attack, or just a plain accident with someone cutting communication lines with construction machinery. The outage might not happen exactly where you live, but you might end up being “collateral damage” if you live in a nearby place. Maybe optical fibers or electricity lines running through the disaster area to your city are cut, causing loss of connectivity and blackouts.

The result is that you can’t use your fancy EMV-chip cards to buy food and water (i.e. pizza and Pepsi), as the card terminals are either off-line or out of power. You can’t get money out of an ATM either, for similar reasons. And since you’re not the only person with this problem, but rather one out of 30000 or 100000 or even 500000 people, you can imagine the chaos if the outage lasts long. Shops are full of stuff, but people can’t get money to exchange it for the goods. What happens?

Riots! Smashed windows! Martial law! Terror!

Maybe so, but don’t just yet run to your bunker.

As technological progress continues, and society evolves with it, we get a society which is, on the other hand, more and more cashless, but also more and more resilient to damage - e.g. card terminals will use the GSM network, because it makes sense (not all shops have ADSL, card readers might need to be mobile; case: pizza delivery).

Of course there’s a tipping point for the amount of damage after which things will just cease to work (e.g. direct nuclear bomb or asteroid hit), but in that case there would be other things to worry about than getting cash. In a “normal” case, there’s a good chance that most of the cell phone infrastructure will keep on working. Cell towers have backup power, and it’s not so likely that all landlines would be cut. Thus communications will route around the damage, allowing you to make card transactions and/or use the ATM.

Also, there’s satellite phone systems such as Iridium, but communication with the satellites requires extra gear, which is not so usual in an urban environment.

The real trouble is actually electricity. But, even this may not be so big a problem. As energy prices rise and people want to live greener, it makes sense for people to obtain their own electricity-generating devices, such as windmills and solar panels. Thus energy production is also becoming decentralized. But one could argue that it’s not proceeding fast enough.

With modern technology it would be possible to equip all houses with devices to generate at least a sizable part of their energy needs. This is a sane thing to do from many perspectives: national security, disaster resiliency, energy efficiency, fighting global warming and so on. It’s just not smart to centralize energy production; anything centralized has a single point of failure.

So, even if cash dies away in the near future, a cashless society will not be completely helpless in disasters.

However, as Mr. Howlett points out, there are other issues, such as loss of anonymity: everything you consume will be recorded in some kind of database, under your big, personal record. I see this as the biggest risk as there is very little a single person can do to avoid this (except maybe revisit the idea of packaging our personal data inside DRM mechanisms, and developing it further). Although there is an obvious and big privacy impact, on the other hand, a lot of people nowadays use “bonus cards” and such, so maybe people just don’t care enough about who sees what they buy. Oh well.

Note: Mr. Howlett is also writing a book called “The Death of Cash”. Synopsis and preview for it will be out in 2009.