Professional services firm Deloitte has proposed the concept of a state-sponsored cryptocurrency, which would combine the advantages of Bitcoin’s technology with government support and oversight.
As the development of blockchain technology accelerates, it is becoming increasingly apparent that buying into Bitcoin’s technology does not necessarily mean buying into its currency. Citi has in fact proposed that the UK create a government-backed form of digital currency, and there have been reports that IBM is even working on one.
The concept may be sacrilegious to some who advocate Bitcoin precisely for working independently of government, although they may face an uphill battle in garnering a widespread following.
In a short paper, Deloitte highlights the shortcomings of Bitcoin, but also points to what can be considered as our archaic financial infrastructure:
“The payment systems in the U.S. and the rest of the world are in dire need of overhaul. Many of today’s payment systems are considered slow, error-prone and expensive relative to performance in other high-tech industries.”
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The firm proposes different roles for the various stakeholders in government-backed crypto. A central bank would issue the currency and control its supply, as well as regulate the processors of its distributed ledger.
Banks would act as custodians over the ledger, and perform the ‘mining’ to validate transactions. They would also register ‘end-users’ on the blockchain and verify their identity, as well as issue the initial public/private key pairing.
End users will use the government-backed currency purely in peer-to-peer (p2p) form, without it passing through financial institutions. Transfers would be instant and free, save for negligible miner fees.
The virtual currency can be converted into other fiat currencies, in ‘physical’ form, using exchanges designated for this purpose.
The report concludes by mentioning that it has proposed only one hypothetical scenario, the main takeaway being to advance debate on the future of money and payments.
In another recent report, the firm discussed the potential of Bitcoin’s technology for a plethora of applications, arguing that news coverage of exchange meltdowns and price volatility are distractions.