Cryptocurrency is slower than card networks. It's more expensive than practically any other way of sending money. And as far as scale goes, it would need to become orders of magnitude more efficient to handle even a small percentage of consumer transactions. After all, what's the point of a cryptocurrency if the only people who can host the full blockchain (or even acquire the full blockchain) are large banks and the government? I.e., where do you even get an internet connection that can accept, in near realtime, a full record of every monetary transaction performed with such a currency? Unlike card networks, every member of the network needs to process every transaction eventually.

I don't think cryptocurrency is at the point where the scalability concerns can be addressed to be used as legal tender for an economy as large as the US.

If this is meant to replace bonds or other government issued securities, what problem is it solving? I can't think of one.

>> A tricky part of this would be how to balance letting the network have control over itself and letting the government have some special degree of input on ‘monetary policy’. It’s certainly ok for the government to have some, but I think the network needs to be mostly in charge (e.g., the government couldn’t be allowed to arbitrarily inflate the currency when it wanted to).

Being able to "arbitrarily inflate" the currency is one of the many tools governments use to stabilize the economy ("monetary policy"). In the US, this ability has been hard fought (removal of the gold standard) and regardless of how you may feel about this, control of the money supply is viewed as a necessary power of the government by the vast majority of macro economist across the political spectrum. So good luck getting the US or any government to adopt a cryptocurrency that removes this control.

I'd love for Sam to dig deeply into The Federal Reserve System and write about this topic with that knowledge.

[EDIT]: The more I think about this the more surprised I find myself. Sam assumes that the United States just can spin up a competitive currency to the Federal Reserve Note. This completely misunderstands the nature of the matrix and its power structure. For any seekers out there, following this rabbit hole is a fun romp on the way to spiritual awakening.

Every transaction was digital and instantaneous (I use a Monzo Mastercard). I got a smartphone notification within 5 seconds of having approved the transaction.

The original promise of "cryptocurrencies" appeared, to me, to be decentralization, not their digital nature. The idea that a currency could be free from the control of a given government or set of governments.

This premise doesn't seem to have held for most current cryptocurrencies, as the prevalence of exchanges as central points of control has just led to governments targeting them to get the information they need to apply things like taxation and money laundering controls.

My question is this: in the proposed scheme if 80-year-old Uncle Jim forgets/misplaces his private key, will the US government really just sit back and say "tough, I guess you just irrevocably lost all your USDC"? Or will they put in some kind of appeal process/back door to allow Uncle Jim to regain access to his funds?

Because if that back door exists -- and I have trouble imagining the US (or any other pragmatic) government building a meaningful system without it -- then the currency isn't actually decentralized anymore, and you might as well drop the "crypto" overhead entirely.

Is it a digital currency?

But, USD is already mostly digital.

Or is it like a real cryptocurrency?

But, the selling point of cryptocurrency is decentralization.

Even if we ignore the decentralization, cryptocurrency has a lot of unresolved issues to work at a massive scale.

PoW burns a lot of energy. And PoS works by making rich richer because of the staking mechanism.

Transaction times on a huge scale network is slow. Yes, there is Lighting/Raiden etc being released but let's wait for it to be proven before we jump the gun.

Before someone says what about centralized cryptocurrency?

That is same as the digital USD. How will cryptocurrency be any different?

This USDC proposal seems to reiterate the same themes as a previous blog post "American Equity".[1]

>, but I think the network needs to be mostly in charge (e.g., the government couldn’t be allowed to arbitrarily inflate the currency when it wanted to).

I doubt the USA government or any other modern government with fiat money would agree to this. Inflating currency is a hidden way to spend money it doesn't have. E.g. since Social Security payments are denominated in US Dollars, the govt can _nominally_ keep its payment promises by printing more USD.

Sure, the buying power of each USD for each SS recipient is severely reduced in that scenario but most citizens don't understand nominal dollars vs real buying power and therefore, it's a win-win for the govt.

A cryptocurrency that doesn't allow government flexibility to spend money that it doesn't have will have monumental political hurdles.

[1] http://blog.samaltman.com/american-equity

"A tricky part of this would be how to balance letting the network have control over itself and letting the government have some special degree of input on ‘monetary policy’. It’s certainly ok for the government to have some, but I think the network needs to be mostly in charge (e.g., the government couldn’t be allowed to arbitrarily inflate the currency when it wanted to)."

This is how the current monetary system works. The "government" can't "arbitrarily inflate the currency". I'm surprised at the lack of depth of this article, is this a brainfart? Haha.

"But I believe there exists a middle ground where the government can get a lot of what it wants, and cryptocurrency users can get a lot of what they want too."

The government wants a lot of control of a lot of things. It accepts giving some freedom to people, like the color of your hair, because there's no consequence (for now at least). However, on the list of the top 100 things it would NEVER, EVER, EVER give up control of, I think currency is in the top 3, probably n°2 after the military. Like I said in another comment, people generally vastly underestimate how powerful the control of currency is.

Crypto-enthusiats want 1 thing : getting rid of the government in the monetary system. Apart from the fact that it is, in itself, both a naive and dangerous dream, there's absolutely no way the government (more specifically the Fed) will ever give up even .1% of control over it.

Considering all of this, I have a REALLY hard time imagining a middle ground. Crypto-people will not get what they want.

Exactly what happens with bitcoin thought.

USG could have started issuing simple Chaumian-blinded tokens ages ago, and even still could - keeping the monetary policy under its control. They could even adopt one of the many proposed systems that's rigged with identity-escrow, leaving average users free from their surveillance. It's not too late to compete but to do so they have to compete, not just keep pushing the same busted-ass paradigm of non-fungibility that spurred Bitcoin adoption in the first place.

If they did do this tomorrow, it would instantly become the top market cap cryptocurrency in the world.

The hardest part about cryptocurrency is that the coin is only as good as the community around it including the holders. Fair distribution is the one feature that has been thus far unachievable and it would really require usage of a mandated government ID database. That would be the US Gov coin advantage beyond branding and enforcement weapons.

If there is a government backed currency, I think there should be no transaction fees.

A USDC could also mean tax jurisdictions could be paid immediately when there is a sale. If sales tax is 10%, the state might get 7%, county gets 2%, and city gets 1%... the distribution is immediate so you have daily cash flow.

Author doesn't really understand how international monetary systems work. His own country is "printing" money all the time and then using its global position to divide the cost of inflation on other countries. USA can do that because most of resources exchange (with oil included) is done in US dollar. They also do clever accounting trick using FED so theoretically they are not printing any money, they are just "lending" them.

Which problem US digital coin would solve? Privacy? This would be nightmare for AML/KYC policies, tax evasion etc.

If you consider all the rogue system players then you need to think about reverting transactions, you need to think about money laundering etc.

This coin would need to have some value, trust is not enough or this would be very volatile instrument. You could ride this new US digital coin and influence USD, so government would need to have tools to intervene and control this coin, which invalidates author point about making coin more independent from government.

There are so many problems with coins backed by countries without giving governments tools to control those coins, but if you add all those tools then what's the point? It will be so similar to current monetary system.

This is a partially direct democracy (for monetary policy) using digital voting with no paper trail! Unless there are crap load of formal methods backing this, it sounds like a recipe for disaster.

(Also, if this is the problem to be solved, why don't we just pass a constitutional amendment requiring a referendum for certain changes to monetary policy...)

> The government can likely create a lot of de novo wealth for its citizens in the process.

The thing that always confuses me: where is the fundamental value creation? I don't see much other than maybe saving on some inefficiencies in the current monetary/financial system. But that's not "de novo wealth"; that's "financial engineering".

How does a state-backed cryptocurrency generate "de novo wealth"?

What I don't understand is:

1) Why the US government would make a brand new currency rather than just support holding existing US dollars in digital form.

2) Why crypto-currency is needed. The crypto aspects of bitcoin are needed to support the fully decentralized processing. If you the currency is centrally controlled anyways, might as well just use an ordinary database with good transaction logging.

It's well-known that deflationary currencies do not work. That is a severe problem that must be solved before cryptocurrency is viable. Limiting the total number of coins means that the currency is deflationary. Furthermore, our current system of loans is based on printing money and requiring payback with interest. That won't work with a limited number of coins.

It's also well-known that blockchain can't scale to handle the volume of transactions that the Visa network handles.

Most of the USD is already electronic. Could we get something cryptocurrency-like with minor improvements? Probably. Will the "crypto" community like it? Probably not, because the "crypto" community knows nothing about how real economics work.

1. It may allow us to get rid of banks. Now this is a pie in the sky vision here, banks do a lot of things. But the most basic thing they do for individuals, storing your money for you so you can spend it later in a more convenient way, is completely obviated by Bit$s. Some of what banks do isn't going to be obviated by Bit$s, I still think there will be a market for loaning money, but it will probably looks quite different.

2. It may allow USG to tax the entire world. US dollars are already among, if not the, de facto international currency. Although this position may be waning. But if Bit$s were the first ever government backed cryptocurrency that people trusted they could wind up being the world's currency. Right now, when people use dollars outside the US, there's no way for USG to levy taxes on them. That changes if you control the entire stack including the mechanism of exchange, you could bake taxes right into the currency. It would be a new form of colonization, cryptocolonization. Now, I suspect the HN crowd pales at the idea of tech being used as a method of colonization, but consider: if this is a risk, then if USG doesn't do it someone else will. Would you rather be paying Russia taxes on your BitRubles?

The biggest political question with respect to BitDollars is whether or not USG will maintain their right of seigniorage? It seems unlikely that such a right would be given up willingly, but on the other hand it's very antithetical to what cryptocurrencies are, at least today.

I do think a nationally-backed cryptocurrency would be a great idea, and have been saying so for a couple years. There are 2 major problems it would solve. First, we have turned payment processors into de-facto taxation bodies. Payment processors have more control over the US economy than the Federal Reserve does. If the Federal Reserve decided to increase/decrease monetary supply and the payment processors disagreed, they could very easily override the Federal Reserve with raising or lowering their bogus "service fees" (bogus primarily because they use a percentage of the transaction amount - as if moving a bigger number across a wire cost more). That is dangerous, and should be avoided.

Second, how long is it until a large scale IT problem destroys all credibility of the US banking system? How long until we wake up one day and find out that Walmart hired some coders to whip up some malware that infected their banks in order to cover up losses and to massage the numbers to make them look like they had more capital than they ever actually earned? How long until other countries refuse a payment of $1 billion on a debt because they don't believe the money is 'real' and want proof it wasn't just some funny accounting on the back of swiss-cheese no-standards 'IT is a cost center' garbage systems? A cryptocurrency wouldn't have this problem. It can be proven 'real' with trivial ease. Fiat currency can never be proven 'real'. And since it's all just bits in computers now, eventually someone is going to realize the computers aren't trustworthy.

To me this is the biggest falsehood about cryptocurrency. There is virtually no anonymity in cryptocurrency. You can't do anything with cryptocurrency without verifying your ID. It is now ubiquitous to provide your driver license and social security on every reputable exchange.

I honestly find it more restrictive to use cryptocurrency than the few dollars I have in my pocket. I can take it outside and buy some candy in the alley without anyone having a record of it. Can't do that with cryptocurrency.

The only way to get around this is to mine your own coins. However, mining is impossible for individuals because of the mining farms.

Thoughts are my own, not my employers.

1. It reduces their cash savings by the ratio of the amount of new money injected to the total supply

2. It is unfair, as the first receipients of this new money get free money. (Inflation increases as that money flows through to everyone, however, the first receipients of this money don't get to face the inflation).

The second issue is solvable. The money should be distributed equally to all citizens, via some tax break or something.

The advantage here is triple-ledger system, not the mining/anonymity features of other crypto. Having a pseudo-dollar cryptocoin creates a digital cash that is inherently traceable and avoids all the nasty bits of international money changing. It's a governments wet dream.

The short answer, though, is that if you have a trusted 3rd party managing the monetary system, there's really no need for cyptocurrency. (Edit) Cryptocurrency solves the trust problem.

Overall, we can trust our government, thus there's no need for cryptocurrency.

This seems to be a recurring area of confusion in every thread about cryptocurrencies, so let's clear it up now:

* The amount of money in circulation is manipulated by the Federal Reserve. When the Fed increases the money supply ("printing money"), it does so through banks, by creating money and letting them lend it. The recipient of the "printed money" is someone taking out a loan.

* Deficits are when the government spends more money than it takes in in revenue. It borrows money (by issuing Treasury notes and bonds) and spends it on food stamps or bombers or whatever. The amount of money in circulation does not change and there's no direct effect on inflation.

These are two separate things. The government can run a deficit without the Federal Reserve printing money. The Fed can print money without the government borrowing anything. Inflation is emphatically not something the government does so it will have more money to spend.

When inflation is too low, we print money. When we want to spend more than we take in, we borrow. Two related but separate things.

The US government can literally do this. They can print as much money as they feel like. It would be 'dumb' for sure, but the US treasury is indeed allowed to do this.

There was even talks of solving the national debt crisis by having Obama create a trillion dollar coin a couple years ago.

Deflationary currencies have worked out fine for literally thousand of years.

Inflationary currencies are a modern concept, with their own advantages AND disadvantages.

I'm surprised this is such a sticking point for people, and that they think the system will literally collapse, when we have centuries of history proving otherwise.

> It's also well-known that blockchain can't scale to handle the volume of transactions that the Visa network handles

Visa level only requires gigabyte level blocks. And that is well within the realm of what many cryptocurrencies are trying to accomplish.

Not Bitcoin core, though, obviously.

Blockchains can scale arbitrarily. They come with some disadvantages, for sure. But at visa levels, they are disadvantages of a certain scale, that matter to people who care about decentralization, to an insanely high degree.

For the vast majority of people, who are willing so compromise very slightly on matters of trust and decentralization, visa scale blockchains work fine.

2. Scalability will be much improved over the next year (see: lightning network, plasma, raiden, sharding, alternate consensus systems like dPOS, etc.; for a deep dive, this is a good place to start: https://multicoin.capital/2018/02/23/models-scaling-trustles...).

This is laughable. Your definition of "work" includes a presumption that we all want the government to control and manipulate the economy without regard for the interests of the individual.

Ask any individual citizen whether they would prefer that their savings increased in value or decreased in value, and I suspect they'll have a different answer as to whether a deflationary currency "works" for their purposes.