Either very clever or extremely risky and possibly both is the phrase which instantly springs to mind with the concept “National” cryptocurrency. Clever for Governments to seek to “own” the blockchain space and potential uses, and extremely risky due to the overall volatility in the market and the sophistication of key players to manipulate it. However, there are other issues which will impact the value and feasibility to implement crypto as either a sole or adjunct legal tender equivalent to fiat (banknotes and coin).
What is a “National” cryptocurrency
National cryptocurrencies draw hypothetical political lines with the blockchain “geography”. In other words, the cryptocurrency (or method of legal tender) is linked to the country rather than a global link to the “coin” (e.g. Venezuela’s Petro cryptocurrency vs Bitcoin which is not associated with any country, company, industry or cause)
As a logical development for payment methods, many Governments have considered the implementation of a digital cryptocurrency and how they might leverage blockchain technologies (secure storage of sensitive information, etc.). National cryptocurrencies currently only target the replacement of physical notes and coins (fiat). However, the adoption of a banknote less equivalent may be difficult to implement due to the resistance of individuals and businesses and lack of trust in a cryptocurrency equivalent of the trusted banknote.
No nation has enough physical fiat to represent the total value in all the bank accounts should everyone ask to remove their balance from the banking systems. On-line banking has paved the way for the acceptance of never actually touching a banknote. Many now pay even the smallest sums by touchless card, and smart device apps (phone, watch, or other device tokens). However, only a small proportion of organizations accept the use of the most popular cryptocurrencies as a method of payment.
National cryptocurrency options are the next best step forward for many countries, making a logical extension of digital currencies to enable seamless money operations, reducing costs overheads associated with the supply and management of fiat (including printing, fraud management, and disposal).
However, it is important to remember that whilst many areas of the world have had stable country borders for many years, there are still tensions which run deep. In times of crisis, stock markets and bank doors can be closed, that’s not quite so easy to halt online transactions on exchanges who complete trades in most coins 24/7 – National cryptocurrencies may also suffer from exchanges squeezing out smaller coins or suffer arbitraging between the value of a National cryptocurrency to a trusted digital coin value like Bitcoin, Ethereum, Ripple, Litecoin.
The bottom line is that in the near-anonymous transaction environment of the cryptocurrency space, the ability of another nation, their agents, or even a few “whales” to manipulate or “pump and dump” in the national cryptocurrency trading space is a key risk which needs to be addressed.
Is 2018 the Year of the National Cryptocurrency?
Although many countries have considered national cryptocurrencies, only Venezuela has implemented one and at a time of national crisis. Venezuela President Maduro launched the Petro in February 2018 in a bid to circumvent US sanctions and gain access to international financing. The Petro is back by Venezuela’s reserves of oil, gasoline, gold, and diamonds.
Other countries planning to launch cryptocurrencies include China with reports that a national cryptocurrency was tested in 2017, though not yet implemented. Russia’s President Putin has asked for the creation of the CryptoRuble. Countries as diverse as Canada, Turkey, Iran and Liberland have considered the adoption of national cryptocurrencies.
Estonia has halted the implementation of the estcoin, their national cryptocurrency which was intended to help nonresidents make secure transactions, conduct business online and interact with Estonia’s services.
In short, 2018 will continue to see a ramp-up in the investigation into national cryptocurrencies which may help build a better framework to ensure successful launches, but it is not the tipping point for adoption – there are too many factors to consider as well as growing political tensions. Learning points from the Venezuela Petro experience and Estonia’s decision to abandon their ambition plan need to be considered.
How national currencies are operated and their basis of value
At present there too few national cryptocurrencies in the process of release to determine how they are or will be operated. However, a few things to standardize launch and acceptance need to be addressed, including:
– Central bank oversight
– Licensing for trade
– Backing by commodities or items with intrinsic value
– Usage, including the enforcement of use as a legal tender and management of the total supply of national cryptocurrency and fiat
– Valuations against other digital currencies and fiat (e.g., USD, EUR, JPY)
– Based on technology, algorithms, management of the digital ledger
– Transaction management including anonymity (or lack thereof)
As for the value of a national cryptocurrency, it has been said that the value of any cryptocurrency is purely subjective. It is also true that many key national currency fiat values are also somewhat subjective since the use of quantitative easing during the crisis. However, it is likely that national cryptocurrencies will need to be backed by fiat reserves or the value of natural resources, both of which will need to be auditable in a fashion similar to Tether’s report on its US$ reserves.
Perspectives of national cryptocurrencies
Given the current perspective that the value of any cryptocurrency is purely a subjective view, it’s not surprising that Governments and the Financial Industry differ on their views and focus.
Many Governments are focused on regulatory, anti-money laundering and cost-cutting concerns on how to implement a national cryptocurrency which supplements fiat to provide seamless international trade at near real-time speed (no more 3 day plus delays in payment).
The financial community is busy figuring out how to exploit FinTech to fuel further growth spurts in service offerings – national cryptocurrencies and the management of distributed digital ledgers provide a wealth of opportunity to do just that.
Furthermore, national cryptocurrencies are likely to bring the trading of all blockchain coins onto more regulated exchanges. Banks will also need to cope with services to maintain accounts which will be a mixture of fiat balances and cryptocurrency valuations.
As for the blockchain community (technologists, enthusiasts, and management teams) has proven time and again that it can adapt to the ever-evolving world of opportunity to exploit the technology. The adoption of national cryptocurrencies may squeeze out many coins with no established community. It is just as likely that national cryptocurrencies will boost the value of every active coin through the mass adoption and explosion in the user base.