How will government-backed cryptocurrencies work?
The United States government’s regulations on cryptocurrency haven’t really gotten better over the years. Many other countries have also placed strict regulations and restrictions on the use of cryptocurrency, including India. Apart from the 170 countries which are yet to release any official regulations on cryptocurrencies, the use of cryptocurrencies is a controversial topic in most countries of the world.
Any show of support from the government has a huge influence on the success of any cryptocurrency project. For residents of the United States and other countries with some tangible restrictions on cryptocurrency use, a government-backed cryptocurrency is only a dream.
In what looks like a lifetime breakthrough, China is rumored to be developing its own cryptocurrency in an ambitious move to replace its paper currency to a more digital currency — the digital Yuan. In the rank of crypto-active countries, China comes top with Singapore a close second.
Despite the fact that the Chinese government is still skeptical about cryptocurrencies and has placed some regulations on the use of cryptocurrencies and other crypto-related activities, China has dominated the crypto space in recent years. Impact of the Chinese and blockchain projects based in China is felt throughout the industry.
A couple of cryptocurrency projects have claimed attachment to government-owned institutions or have received backing from a government body. This usually turns out to be one the numerous cryptocurrency propaganda; for instance, the ‘Putin’ coin. The crypto space is usually enthusiastic towards projects with a sort of government attachment, a show of what the government influence could mean.
Cryptocurrency projects backed by the government were before now, a mere illusion. Government support is what many predict to be the event which will revolutionize the idea of cryptocurrency and blockchain technology and usher in an era of mainstream cryptocurrency use.
The Chinese government is rumored to be working on a digital currency in the hopes of replacing their paper currency with a more digital and sophisticated currency. By utilizing blockchain technology it hopes to create a digital form of its official currency — Yuan. With progress being made, the Chinese digital Yuan shows how a government-owned cryptocurrency could be run. A pattern which I believe will be adopted by other countries if they ever wish to do the same.
Taking a look at the mode of operation of the digital Yuan, a cryptocurrency owned by the government will operate only a little different from normal cryptocurrencies. They may present another shift from the normal orientation of cryptocurrency.
A ‘centralized blockchain’?
The blockchain is a social and technological design. One of the main focus of blockchain technology is impartial distribution of power and authority to make decisions. The blockchain is regarded as a tool to shift power to the majority instead of the ‘powerful few’
A centralized institution will hardly develop a decentralized technology. The same goes for the government.
The world government structure is centralized. The presence of a central body of authority controlling the affairs of the people is the original idea of the government, this concept is also expected to be an aspect of a government-owned cryptocurrency. With a government-backed cryptocurrency, it could be impossible to ‘be your own bank’. Core financial activities will still require the involvement of a third party and the government retaining its veto power on activities related to this currency. If government-owned cryptocurrencies will ever be a thing, decentralization will probably be the first idea of blockchain technology to be omitted…and forgotten.
Centralized distribution scheme.
Initial distribution of most traditional cryptocurrencies attempts to be a decentralized process. Proof of Work (POW) or Proof of Stake (POS) blockchains employ a decentralized token distribution algorithm. Put simply, tokens are not issued by a central body. In contrast, fiat currencies are issued by the central bank which controls most aspects of its distribution.
With government-owned cryptocurrencies, this won’t be far from the norm. As seen with the Chinese digital yuan, distribution of the ‘cryptocurrency’ will be made by the Chinese central bank to local banks from where the circulation will continue to the lower distribution chain.
If you hope this practice will only apply to the digital Yuan; you’ll have to quit the dream. The government strives to gain control… over everything. Wealth creation and distribution comes top in their scale of preference. Giving away the authority to generate a generally accepted means of exchange spells the end sovereignty. A government letting go of its biggest hold on its citizens won’t come easy, if at all.
If you are hoping to set up a node to mine and earn national cryptocurrencies, then you might have to put a pause to that!
Freedom gets even costlier
Everyone probably fancies the idea of world governments embracing cryptocurrency and blockchain technology. Dreams do come true but wishes always come with a taint. Blockchain and cryptocurrency are objects of revolution, a tool to lead into the new world. Unbanking the banks, taking power from the government and distributing authority to the general community are the core values of blockchain technology. More of a social goal than an economic goal.
Government influence on blockchain technology will only further complicate the journey toward freedom from centralization. A government-owned cryptocurrency will be relatively similar to fiat currencies. The only difference with digital currencies could be flexibility which is not very different from what banking applications offer currently.
If you remove decentralization and permissionlessness from a digital payment system then one of the main ideas of blockchain technology is as good as defeated.
Blockchain technology’s utility exceeds decentralized payments. A country-owned blockchain could be put to many other uses and the digital currency running on it be used as a utility token — a more exciting idea than a payment protocol which will inevitably be centralized. A bank built on the ‘blockchain’
What to expect? Nothing spectacular. Probably a refined version of what we already have. Governments’ involvement in blockchain technology will be a buzz, no doubt, potentially having a positive impact on the value of cryptocurrencies. However, this is certainly not our principal wish. A genuine cryptocurrency enthusiast wishes for a day when cryptocurrencies becomes a legal tender and a generally accepted medium of exchange.
This could be possible,but some core values of blockchain technology and cryptocurrency might get lost along the way. While we keep our fingers crossed and watch the development, it’s advisable to lower our expectations.
This article was first posted on Voice for cryptowriter