The Beginning of the End for Fiat Currency: Government-Issued Crypto Gaining Traction Worldwide
The term “government-issued” cryptocurrency is paradoxical. The core tenets of cryptocurrencies — decentralized ledgers and trustless cryptographic payment clearance — are antithetical to government control over value transfer. Officially sanctioned government issued cryptocurrencies are increasing in number, however. Sweden, Japan, and Russia have all investigated the benefits of a state-backed crypto, while countries such as Dubai, Iran, Venezuela and, more recently Korea, have already implemented them.
Cryptocurrencies may provide technologist libertarians with a vehicle for value transfer outside of the regulatory reach of government, but the core technology that drives them is highly attractive to the financial arm of any state. A blockchain-powered crypto dollar provides a state with the ability to track all transactions, earnings, and tax liabilities on an immutable ledger — an outcome less than ideal for individuals seeking to escape institutional capital control.
Countries that have issued or are investigating issuing state cryptos do so for many reasons — to circumvent international trade sanctions, as part of an initiative intended to tackle runaway inflation, or as a reactionary measure against the growing influence of open-source, community-driven cryptocurrencies.
State-backed Cryptocurrencies Are Already Here
The benefits of blockchain technology applied to governance are obvious — increased transparency and immutability offer governments an attractive opportunity to increase efficiency and lower costs. Spain’s ruling party, for example, is already pushing for wholesale blockchain adoption at all levels of government.
Countries like Russia and Japan have announced research initiatives focused on the viability of solutions such as a “Cryptoruble” or “J-coin,” but a number of states have already made government-issue cryptocurrencies a reality — with varying levels of success.
Venezuela’s highly controversial Petro cryptocurrency is a strong example of poorly-implemented blockchain technology applied to state-backed currency. Intended to address the country’s runaway inflation issue, the Petro has been plagued by obstacles and issues since inception. Venezuela’s socialist president Nicolas Maduro recently mandated that banks must accept the commodity-backed crypto despite virtually no real-world use of the cryptocurrency.
Other examples of state-backed cryptocurrencies are less spectacularly catastrophic. Dubai’s EmCash, launched in September 2017, allows citizens to pay for services such as “their daily coffee and children’s school fee to utility charges and money transfers” via NFC-supported smartphones and has demonstrated relative success thus far.
More recently, the South Korean province of Gyeongsangbuk-do has revealed a new initiative that aims to replace a complex but widely used city-issued gift certificate program with a government-backed cryptocurrency. More than 60 municipalities within the region currently use gift certificates issued by the local government as part of an initiative intended to bolster local economies and prevent capital flight — the new “Gyeongbuk Coin” will see 100 billion won ($90 million USD) worth of the state crypto issued annually.
State Cryptos Could Doom Fiat
While states may issue cryptocurrencies in an attempt to optimize fiat currencies or to shift the direction of the blockchain revolution, the distribution and management techniques used to regulate fiat currencies are arguably incompatible with cryptocurrencies.
State-backed cryptocurrencies may appeal to regulatory bodies as a highly efficient method of instituting a cashless, totally traceable monetary ecosystem. Promoting the adoption of cryptocurrencies — state or otherwise — and educating a populace on their use, however, is arguably a double-edged sword for a state apparatus.
State cryptocurrency as a fiat replacement is far more likely to catalyze further adoption of decentralized, open-source cryptocurrencies that magnify the effect of the blockchain revolution, further weakening the structure of the fiat paradigm — as evidenced by rapid-onset large-scale adoption of cryptocurrencies as a fiat alternative in Venezuela.
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