To combat the rising popularity of cryptocurrency, this past year the creation of government cryptocurrency has become a tactic to reclaim the economy by embracing some form of blockchain technology. Prior and continuing government regulations on Bitcoin and other altcoins shows the threat cryptocurrency has to fiat currency. However, the creation of government cryptocurrency proves that it’s a technology not easy to squash. So, which is it? Does the government want to take over the crypto market by placing themselves at the top, or are they just desperate to remain in the loop?
Let’s first look at the difference between a government coin and a traditional cryptocurrency.
Centralized vs. decentralized
The main component of blockchain technology is decentralization. This means that no one person, organization, or agency controls it. No one has access to your personal data, the value of the blockchain’s coin is controlled by its market of users, and your coins cannot be seized as an asset. A government with a decentralized currency is an oxymoron; it cannot exist. The government is a centralized organization; therefore, their cryptocurrency would be called a Centralized Digital Currency (CDC).
A centralized currency means little to no privacy, even more than traditional fiat since cash is still an untraceable mode of sale that serves the black market well. With digital coins, all transactions are recorded on the blockchain and usually they remain anonymous. But, with a centralized cryptocurrency, the government essentially owns the blockchain and controls its capabilities. In the case of the Russian CryptoRuble, your coin’s wallet can be audited and penalized through taxes if unclaimed money is found. The ramifications for a centralized government currency defeats the purpose of cryptocurrency when it comes to consumer privacy.
Motivations and outcomes
But, just what are the intentions of creating a government currency that is centralized and provides no privacy?
Many countries like Venezuela, who are currently under U.S. government sanctions, could use cryptocurrency to undermine barriers for international transactions. In Venezuela, to deflect U.S. restrictions, the president has already created the Petro digital currency in order to export and profit from the country’s main natural resource: oil. Other countries like Russia and China have decided on similar options to make international business easier. For example, transaction histories would be hidden from the U.S.-dominated global banking system and the IMF (International Monetary Fund) that is basically controlled by the Federal Reserve in Washington, D.C.
One of the biggest motivators is, of course, profit. Right now, blockchain technology makes black market sales accessible to anyone. Even legitimate sales, for instance when someone doesn’t claim their Bitcoin profit on their taxes, goes missing on tax forms. With the ability to mine coins, trade on cryptocurrency exchanges, and sell coins at various prices, it is impossible for agencies like the IRS to discover tax evasion. A U.S. government cryptocurrency would not miss a single taxable coin when they have access to their own blockchain data.
Keep fiats relevant and in command
By creating a government-issued cryptocurrency, state currency can still be maintained. For example, the Russian CryptoRuble can be exchanged for rubles anytime. Meanwhile, regulations and bans on other cryptocurrencies are being imposed by these same governments. This gives the government a renewed monopoly over the country’s currency.
Good for Corporations
Businesses who already have their thumb on state governmental policy would also benefit from a fiat digital coin. Large corporations like Mastercard have shown support to government-backed cryptocurrencies. Their reason is to remain afloat as blockchain technology, left untamed, could allow transactions to occur without them by removing third party necessities. Although many retail companies have begun to accept cryptocurrency as a form of payment, a government coin would be more readily accepted because its value would be controlled and secured. This is a safer option for businesses worried about a failing crypto coin. So, governments can offer an alternative to cryptocurrency while keeping fiat flowing.
Track and record transactions
This could be considered a co-op or a compromise depending on how you look at it. It benefits governments by allowing them to avoid counterfeiting and money laundering schemes. It also eliminates middlemen like banks from monitoring and regulating purchases since the government would control its own blockchain and distribution of interest rates. This could make transactions cheaper and your money safer. But it also means a centralized system where one entity controls your money. Sound familiar? Basically, it is conciliation cryptocurrency that is really a fiat currency in digital form. It provides some minor conveniences but without the autonomous nature of a non-government cryptocurrency.
Change yet save banks
In a world were decentralized cryptocurrency takes over the majority of payments and transactions, the banks become absolute. With a government digital currency, banks would still survive. However, they would change as they would no longer be needed for every and all consume-related activity. Most likely they would handle small loans and mortgages still. Banks have too much money and influence over government policy already that it would be impossible for them to be dissolved completely. That is why government cryptocurrency would be a compromise to keep banks in business.
A sign that cryptocurrency is an inevitable change
The rush for governments to first regulate then mimic the cryptocurrency phenomenon shows the power behind the movement. If you can’t beat them, join them. However, in this case there seems to be both an agenda to co-op and alter cryptocurrency principles. Government-issued coins are not decentralized and certainly not anonymous. These lacking characteristics reveal the compromises that governments must now make in order to maintain control of the economy and their country. They know change is coming, and they will do anything to remain relevant.