The most compelling argument I’ve seen for cryptocurrency is current forms of electronic money are too easy for governments to monitor and restrict, which creates unacceptable risks of authoritarianism. But then convenience of electronic money means that alternatives are disappearing.

The hope is that cryptocurrency could give us payments that are as convenient as Apple Wallet, and as anonymous as a pocketful of quarters.

However most cryptocurrencies are terrible at this use case. They are too slow, too expensive, too volatile, too vulnerable to theft, and often not even particularly anonymous. What Cryptocurrency is great at is scams, speculation, and cybercrime.

So could we create an online payment system that was good at what paper money used to be good at, and bad at crime? To be good at replacing paper money, you’d want it to be reliably anonymous, cheap, and fast. To make it bad at scams, you’d want it to not support large long distance transactions.

I’m not a cryptocurrency expert, but my hunch is that you could do pretty well by doing something along the following lines::

* Register with a bank, and verify your identity and physical location.

* Purchase a limited amount of “e-cash” (e.g. $1000/month) tagged with a physical region, where the amount you are allowed to purchase depends on how close you live to that region. Call the the e-ATM.

* Use slow distributed protocols to route these coins through tumblers, turning them into anonymous coins in anonymous wallets - where these new coins and wallets are still tagged with your original location.

* At payment time, quickly transfer a coin to another person by sending a request to the bank that issued the original coin. The bank doesn’t know who owns the sending or receiving wallet, but can verify that the coin hasn’t already been spent and update their centralized ledger of which anonymous wallet it is in.

* Route the coins you receive through another round of tumblers.

* Withdraw coins at your validated personal bank, subject to location specific withdrawal limits.

In essence, you’ve got an anonymous cryptocurrency, but the ingress and egress rules combined with location segreation make it hard to move large amounts of money long distances. To make large long distance transactions, you’d have to arrange for lots of people to agree to perform “black market” exchanges of different local coins - and anything that requires coordinating large numbers of people gets hard.

So what am I missing?

Substack version here: https://messyprogress.substack.com/p/mini-posts-collection-3-august-2024