02/20/2013 01:12 pm ET Updated Apr 22, 2013

The Anonymity Fantasy

My latest on brave new digital money is here. (Some persnickety BBC editor needed to change "cash-killing tear" into "cash-killing mission," but whatevs. It's mainly in tact.)

Headed my way, no doubt, are a slew of critical letters, posts and tweets about lost privacy in the digital age, and how electronic transactions promise to erode the last vestiges of privacy. I am, as usual, Big Brother's little bro. Satan's trusty sidekick.

A smart thinker on matters privacy is @MarcHochstein at American Banker. (I know, American Banker, right. Who knew?) His latest on the subject is here and it's worth a read. It's also worth clarifying the astoundingly out-of-context quotes he pulled from my book and our interview.

Marc makes a decent argument for the need for anonymous payment systems, although the examples are rather tired, like the woman buying a home-pregnancy test, who could face horrible consequences if someone found out she were doing so, or the young man from a strictly kosher home acquiring a Slim Jim on the sly. Until something better comes along, we need cash around for this kind of transaction.

This is a hard argument to muck with -- because it's right. These hypothetical individuals obviously deserve privacy, just like the rest of us do. And we need privacy hawks, too, sounding the alarm and pushing for better safeguards when it comes to transactions the way others are pushing back against police departments that want to use drones to protect and serve.

But where Hochstein misses the mark is the privacy-anonymity divide. Big hat tip, by the way, to @dgwbirch at Consult Hyperion: This distinction isn't merely a semantic difference; it's an oversight of enormous importance for at least two reasons.

The first is that, like it or not, anonymity and civil society don't mix. We have laws and we have law enforcement. We vote, collect Social Security, join the PTA, have driver's licenses and grudgingly tolerate the TSA. Without break-the-glass access to digital records, law enforcement doesn't really work, save for crimes halted right there in the light of day. It isn't exactly a popular meme to defend the right of government, but it happens to be correct. Not only do we not deserve anonymity, but most people -- when they calmly consider the implications of absolute anonymity -- don't even want it. What they want, and what we all want, is sufficient privacy.

Where Hochstein is wise is in not making a grandiose pro-cash argument. He knows too well that cash is problematic, antiquated, expensive, downright unfair and becoming more so as the gap between rich and poor widens. He is open to the possibility that a future medium or method of exchange will provide privacy on par with today's cash. Some would say Bitcoin is it. Others would scream hardly!

The second major reason why the anonymity argument is weak: cash is most punitive for the people who can least afford it. This is a big part of The End of Money and mentioned briefly in the BBC riff, so I'm not going to elaborate in this post. But what we have to keep in mind is the tension between the right to transaction privacy and the potential for new technologies that substantially improve people's lives. Revering cash's ability to ensure anonymity without pausing to think about who gets hurt by cash and why is as myopic as celebrating every digital money tool without ever considering its privacy implications.

So go out and join the fight for privacy; God knows it's one that needs waging. I just don't think fantasizing about anonymity will do us much good. And clinging to cash definitely won't.