A Novel Movement Towards National Cryptocurrencies — How to Deal with It?

“Announcing the first release of Bitcoin, a new electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s completely decentralized with no server or central authority” — Satoshi Nakamoto

Will there ever be a heist for a national cryptocurrency? © Julian Bauer

As concisely disclosed by Bitcoin creator(s) Satoshi Nakamoto in this seminal Bitcoin announcement on the 9th January 2009 on SourceForge, the ultimate and foremost goal of cryptocurrencies is about decentralisation. The motivation underlying this idea is straightforward: building a fully disintermediated and trustless monetary system does not entail the imperative to trust one single third-party authority. Indeed, cryptocurrencies are — amongst others — also about nanotransactions or pseudonymity. However, the cryptographic setup lurking in the background of the new digital cash has been mainly built to ditch the notion behind central banks.

The subtle newspaper reader, however, can currently observe a striking development that evolves diametrically to the genuine notion of cryptocurrencies: sovereign nations issuing, discussing, or exploring the opportunities of national cryptocurrencies. Venezuela has launched its commodity-backed cryptocurrency “petro” on the 20th February 2018. Iranian Information and Communications Technology Minister MJ Azari Jahromi tweeted on the 21th February 2018 that the bank is planning to “implement the country’s first cloud-based digital currency using the capacity of the country’s elite”.

According to a report issued by the Middle-East-focussed media site Al-Monitor on the 22th February 2018 (Link), Ahmet Kenan Tanrikulu, the deputy chair of Turkey’s Nationalist Movement Party and the country’s former Industry Minister, has drafted a report to propose a state-backed cryptocurrency dubbed “Turkcoin”. On the 25th February 2018 Switzerland’s stock exchange chairman initiated a discussion about a potential issuance of an “e-franc” (FT Article: Link). Just recently, on the 2nd March 2018 a press release (Link) for the country’s forthcoming ASEAN Global Blockchain Summit 2018 tells the readers that Cambodia may issue its own legal cryptocurrency. These developments naturally give rise to the question how to deal with it?

Are cryptocurrencies overruling traditional currency soon? © Dave McBee

These national-based monetary developments are pivotal from a 1) cryptocurrency, 2) macroeconomic, and 3) political point of view.

1) Frankly speaking, hardcore cryptocurrency believers who are certain that cryptocurrencies will replace fiat money via an example phenomenon called “Hyperbitcoinisation” are mostly reluctant to such movements since it contradicts the main notion of a peer-to-peer cash system. The expertise of this group of people is however invaluable to build an appropriate national cryptocurrency. To win this specific crowd, one would need to emphasise the decentralisation aspect of the cryptocurrency to be built. For example, Switzerland would represent an appropriate use case with its cooperative federalism where each canton could depict one full node.

2) Cryptocurrencies and its underlying technology blockchain has vast potential to bank the unbanked. It is hard to believe that roughly two billion people in the world still do not have a bank account. Technical scalable cryptocurrencies would allow microtransactions wherefrom a significant stake of people from the emerging market countries could benefit from. Also, countries that have experienced significant devaluation of their national currency could also take advantage of efficiencies offered by cryptocurrencies in terms of moving money into and out of the country.

3) National currencies are always explicitly or implicitly subject to political governance. The governmental body of each country must find by themselves the right governance mechanism and framework of which the population benefits the most. The traceability and immutability of cryptocurrency transactions offers a natural transparency and advantage over fiat money and therefore should be supported by the regulators. Overall, it is of upmost importance that the purpose of a national cryptocurrency is congruent with the original notion of a decentral cryptocurrency.

So, what’s the bottom line on all that? Well, national cryptocurrencies are a great concept that should be looked at. However, by building an e-coin the accountable stakeholder must bear in mind the spirit behind cryptocurrencies — if one talks about cryptocurrencies, one always talks about the underlying blockchain technology and therefore ultimately about distributed consensus! So, don’t mess with that, please.