Ever since Bitcoin was released to the world in 2009, governments have been struggling to catch up. Lagging behind in technological understanding, regulation and security, many of these governments had made moves to minimize the potential of crypto or demonize the usage of digital currency.
As it becomes increasingly apparent that cryptocurrency is here to stay and can no longer be stopped, many governments are taking a new approach. The new strategy is to adopt, co-opt or replace existing cryptocurrency.
Here are examples of each method.
Adoption: Japan makes Bitcoin legal tender with over 260,000 stores accepting Bitcoin. Japan has become a testing ground for many new technologies, especially when it comes to e-commerce and FinTech. The country has been way ahead of the United States when it comes to smart card and mobile payment services. It comes as no surprise that they would be one of the first nations to make Bitcoin legal tender. This approach is very appealing because it allows a smooth transition to an already well established and supported cryptocurrency. I would not be surprised if there are clandestine moves by certain governments to slowly accumulate reserves of cryptocurrency.
Co-option: Banks fund and back projects which they deem as more “controllable”, not posing a threat to their financial hegemony. Two coins I believe fall into this category are Ripple and Tezos. This method is the most insidious because it is a trojan horse technique. Certain undesirable attributes are attached to these tokens and then they are passed off as cryptocurrency, while lacking many of the features that are desperately needed in the monetary system ie no central control, privacy and no connections to current financial power brokers. Many large banks have also tried to develop their own currencies that allow them to maintain central control, which leads us to our next method.
Replacement: China Becomes First Country in the World to Test a National Cryptocurrency.
“China's central bank has developed its own cryptocurrency, which is now being tested. Cryptocurrencies have the potential to not only benefit China, but the rest of the world, due to their basis in blockchain.”
This is similar to the co-opt method in that cryptos are being sold as beneficial because of their “basis in blockchain” even though central banks are stripping the privacy features from the tokens.
“Yao writes that the currency would only use a distributed ledger in a limited way. A blockchain might not be used to process transactions, as this could prove an insurmountable bottleneck for a currency with such a huge transaction volume as the renminbi. But such a distributed ledger might be used to periodically check who owns what. “The ownership of digital currency can be verified directly by the issuing bank, so as to realize peer-to-peer cash transaction[s],”.
Luckily most people have come to be cynical of central bank intervention, making this less of a threat than the co-pt method. That being said, attempts by central banks to develop their own national cryptocurrencies will not stop anytime soon.
“China’s central bank — the People’s Bank of China — has developed a prototype of a cryptocurrency that could end up in circulation in the near future. It would be introduced alongside China’s primary currency the renminbi (also called the yuan). China will be simulating possible scenarios and running mock transactions using the cryptocurrency with some commercial Chinese banks.”
China may be leading the way but other nations are not far behind. The Deputy of Russia’s central bank has emphatically stated that “regulators of all countries agree that it’s time to develop national cryptocurrencies.” Recently Putin met the founder of Ethereum Vitalik Buterin and endorsed the digital currency.
Conclusion:
Cryptocurrency is here to stay!
Government central banks and private banks will continue to use all three of the aforementioned approaches to cryptocurrency, adoption, co-option and replacement.
Replacement and co-option remain the most dangerous methods as they seek to undermine the fundamental attributes of privacy, accountability and transparency.
Adoption is the most desirable method because it allows for open source, truly decentralized and consumer chosen solutions ie bitcoin.
I would personally like to see both bitcoin and litecoin given “legal tender” status. Bitcoin could be used as a token of reserve or large settlement vehicle,while litecoin would be used for daily transactions. I am partial to this solution because both networks are well tested and have great communities and infrastructure behind them. The two tokens are extremely similar and if BTC implements SegWit they could both institute Lightning Network and eventually Atomic swaps, allowing for cross blockchain transfers without the need for a third-party service. Bitcoin would need to quickly and effectively solve its scaling problem for this to be feasible.
This is not the only solution and would not have to be the be all and end all. Potentially adding a third currency as legal tender could allow for a more diverse and robust ecosystem. Graphene technology is extremely exciting and powerful. The fast and free transactions make for a compelling argument as a currency.
I do not know exactly what the future holds but I do know that governments and banks will continue to try and control it. Be discerning in your investments and crypto advocacy. Humanity is in dire need of a transition into an honest monetary system and we cannot afford to get this transition wrong.
Sources
https://www.technologyreview.com/s/608088/chinas-central-bank-has-begun-cautiously-testing-a-digital-currency/
https://futurism.com/china-becomes-first-countrchina-becomes-first-country-in-the-world-to-test-a-national-cryptocurrencyy-to-test-national-cryptocurrency/
