When Satoshi Nakamoto first introduced Bitcoin in 2008, the industry’s foundational white paper described the token as a digital currency with “no central authority to issue them.” Nakamoto envisioned a usable, digital currency that operated outside of the purview of the governmental authorities that issue and regulate traditional currencies.
It was a timely experiment.
Bitcoin’s release coincided with an era of global skepticism in the financial and governmental institutions. The Great Recession was in full-effect, brought on by the missteps and stupidity of financial elites, many of which were eventually bailed out by governments. At the time, it was a mini-rebellion, but it’s one that has grown in resonance and capability in the decade following its inception.
Now, as Bitcoin enters its second decade, governments and central banks are increasingly relying on the token and other digital currencies to conduct business, skirt financial regulations, and to more efficiently function in the digital age.
Moreover, many governments and central banks are working on creating their own cryptocurrencies, a transformational move the reveals the profound impact that Bitcoin and other cryptocurrencies are having on the future of money.
In short, a technology intended to thwart the role of banks and governments is being employed by those same institutions at a rapidly prolific rate.
This week, the Bank of Thailand announced Project Inthanon, a collaborative effort that includes R3 and eight participating banks. The project effectively serves as a pilot program for a national cryptocurrency in the banking sector. The program will implement their Central Bank Digital Currency (CBDC), a cryptocurrency built on Corda that will facilitate bank transfers.
Although this program is only intended to serve as a test case for the government’s use of cryptocurrency, Thailand’s announcement made clear that the outcomes will determine the design of the country’s future financial system.
In addition to Thailand, other countries are pursuing similar initiatives. The Bank of Canada issued a working paper on the financial benefits of central banks issuing cryptocurrency, and the Hong Kong Monetary Authority launched a blockchain-powered central banking experiment in August.
Taken together, these initiatives represent innovative, tangible inroads for cryptocurrencies to receive mainstream adoption at the governmental level.
To be sure, not all countries are using cryptocurrencies in such advanced ways. In July, an indictment by Robert Mueller, the special investigator managing U.S. investigation into Russian meddling in the 2016 election, found that Russian operatives used Bitcoin to fund their advanced hacking and propaganda efforts. In doing so, the indictment alleges, the bad actors avoided detection until the investigation uncovered their identities.
Meanwhile, North Korea and Iran have both skirted international sanctions by using cryptocurrencies to fund their government. A former National Security Agency official, Priscilla Moriuchi, recently explained to Vox that
“Korea earns between $15 million and $200 million by creating and selling cryptocurrencies and then turning it into hard cash.”
Iran, another isolated country facing similar economic pressures, is turning to ransomware and crypto mining software, both of which generate revenue in Bitcoin.
Of course, the most extreme example of a central government’s use of cryptocurrency, Venezuela’s Petro token, remains one of the most ambitious and controversial applications of digital currency by a government. The country’s president, Nicolas Maduro, is widely seen as a pariah in the international stage, and his country’s attempt to sidestep international sanctions and rising inflation has not always been well received by outside observers.
Even so, Venezuela’s digital currency is one of the closest expressions of a national cryptocurrency that we’ve seen so far.
While the idea of a national digital currency is alluring, no country is pursuing such a broad initiative at this point. However, at a July congressional hearing, the U.S. Financial Services Committee heard testimony from experts and academics about the future of money.
Scholars from the University of California Santa Barbara testified that
“the Federal Reserve will, at some point in the future, need to respond to the disappearance of cash and I have given some reasons why it might consider offering some form of retail-oriented central bank cryptocurrency.”
If pilot programs like the one underway in Thailand are successful, they could serve as the first step toward a truly national currency. In the meantime, it’s clear that governments will utilize existing currencies and their underlying technology to improve their ability to facilitate effective monetary policy for the modern economy.
Image from Creative Commons Images.