On Second Thought, a Federal Cryptocurrency Isn’t the Answer


Cryptocurrency has caught the attention of the mass public — as well as regulators. Governments see potential in cryptocurrencies but are concerned with their lack of regulation. For governments, a solution as they see it might be to develop their own coins or tokens. But these “fed coins” likely have a low chance for success.

Here’s why.

The current cryptocurrency market is much more than just a fleet of digital currencies. Many altcoins are projects linked to real-world solutions that also employ blockchain and a subsequent token. VeChain, for example, looks to help the supply chain industry. But at the core of cryptocurrency and blockchain is the potential for a digital-currency option.

A digital currency is like introducing email at a time when only snail mail was common. Cryptocurrencies like Bitcoin, Monero, and Litecoin pose significant opportunities as currencies. To be able to send direct value from one party to the next — without excess time and fees is something truly fascinating. The obvious conundrum is that these digital currencies are entirely speculative and not “backed” by anything.

But is that really a problem?

As seen by regulator commentary, regulators likely may be outwardly bashing crypto, but may be in the background, secretly exploring how they can use it to their advantage.

Many investors who are new to the crypto space often ask questions like: “Why doesn’t the government just create a government-backed national cryptocurrency?” Mainstream media has even chimed in on the subject. The prospect of a national cryptocurrency also looks especially enticing for countries like Venezuela, whose currency is practically worthless.

But a federally backed and regulated cryptocurrency simply wouldn’t make sense and may have a high likelihood of failure.

fed coins
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Image credit: Creative Commons/Pixabay

The Value of Decentralization

One of the biggest reasons that Bitcoin has seen such success is because it’s decentralized. There is no central authority that owns the majority of coins and no central point of failure for the network. It’s also relatively deflationary in nature, with a maximum supply of 21,000,000.

Government-issued currencies are prone to inflationary problems. Take the popular example of the Venezuelan Bolivar. In 2017, $1 US dollar was worth 3,100 Bolivars. The bolivar has lost 98% of its value with $1 US dollar now worth roughly 191,000 Bolivars.

Venezuela offers an even more extreme example but even the United States dollar proves the same point. At the time of writing this article, the US national debt is over $21,500,000,000,000 USD. If the US were to make a national cryptocurrency, it would be greatly impacted by that debt. In addition, governing bodies would likely have significant control over that digital asset.

Another problem with a national cryptocurrency is that it wouldn’t be borderless. A large selling point for Bitcoin, is that it is a worldwide asset, with no need for conversion to other currencies. Also, as seen above, it is not tied to the success or failure of any government, as well as not tied to the control of any government.

Web Bot creator Cliff High talks about the prediction that the “powers that be” will make three attempts at a monetary transition, but with no avail. This alludes to the failure of a government-backed cryptocurrency. High does mention an interesting alternative option though, in the effectiveness of a tax coin. This would make it much easier to claim taxes in the crypto space, among other things. The Web Bot is a computer program that makes future predictions based on internet keywords.

The current market for cryptocurrency may be unstable. But the future seems bright for Bitcoin, as a deflationary, borderless, digital store of value and currency that is decentralized.

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Benjamin Pirus is a contributing writer at BlockTelegraph. He's a full time writer, editor, and trader in the cryptocurrency space. He has written many professional articles for numerous ICOs, news sites, and other interested parties in the crypto space. He is also a trader, staying up to date with the crypto markets constantly, and dabbling in traditional financial market trading occasionally.

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