The Royal Canadian Mint (RCM) announced Friday that it is looking to divest from the MintChip project.
The initiative aimed to create a secure peer-to-peer (p2p) technology for storing and transferring the Canadian dollar that avoids the need for a middleman, such as a bank. The concept bears resemblance to Bitcoin and other digital currencies facilitating p2p transfer, but with “real” money. At launch, it was described as “evolution of physical money, with the added benefits of being electronic.”
RCM spokeswoman Christine Aquino said that plans for the digital currency “matured” and turning the project over to a private entity is a “natural next step”. However, the tone of her other comments may imply more fundamental issues with the project:
“The Mint is currently working with the [Canadian] Department of Finance to explore divestiture options. The Mint is also in the process of completing development of MintChip to package the assets for divestiture.”
The project had been launched back in 2012. The Mint partnered with Ingenico, a leading global payment solutions company, to develop the technology. The solution was recently presented at the National Retail Federation’s Annual Convention & EXPO in New York. One month ago, SecureKey was brought on board to provide PIN authentication for the solution.
The reason for this seemingly abrupt change of course is unclear at this point. It could be that this is an undertaking better suited for a technology entity, with appropriate oversight for the necessary financial authorities and inter-regional standards organizations, while RCM focuses on its mandate of producing and managing physical cash.
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More worrisome though is the prospect that mid-project, the government simply realized that it did not fully understand the concept of digital currency and what exactly it was embarking upon. Perhaps the net benefit to the economy came into question as the pros and cons were critically analysed. Recently, one got a sense that the roadmap and next steps were unknown.
An insightful piece in Forbes raises some key questions about the whole undertaking. MintChip isn’t the first attempt; previously we’ve had the Mondex experiment and Digicash. TechVibes also did some digging into the initiative:
“Aside from offline P2P transactions, it was a struggle to determine the specific advantages of MintChip over other virtual currencies, or why the world needs yet another payment method. Brûlé himself was hard-pressed to explain how MintChip afforded any compelling advantages beyond a service like PayPal, except perhaps that transaction fees will likely be charged to merchants instead of consumers. In fact, when asked whether MintChip wasn’t essentially a state-sponsored PayPal, a distinct chill fell over the interview.”
An Insurmountable Paradox?
The novelties to cryptocurrency such as Bitcoin can be broken down as follows: It can only exist in digital form. It is “self-securing” in that its integrity and security do not depend on a 3rd party such as a bank. Fiat, in its digital form, must involve some sort of 3rd party. In physical form, fiat technically doesn’t require a 3rd party to function (like cash in your pocket), although in bulk quantities it usually does.
By functioning outside the domain of a 3rd party, bitcoin transactions aren’t reversible. Funds aren’t protected by any deposit insurance and no authority backs the tender. Lost coins on a trashed piece of hardware are forever gone.
Obviously, the supply and value of the currency aren’t subject to a central authority’s monetary policy. Assets can’t be frozen and large transactions can’t be blocked.
The question is: when trying to do this with fiat, where do you draw the line? Can it function as a true p2p system but still be called fiat? What happens in a scenario where a major institution “misplaces” $50 billion in reserves? Will it be backed by the government? What if a transfer is done in error- can it be reversed? And by who? One can’t overlook the fact that the modern-day form of fiat has baked in features that make the role of centralized authority integral to its functioning.