In the developing world, having high remittance flows (such as sub-Saharan countries) or being unbanked will make cryptocurrency very attractive for the population in general. But I'm not sure if the government themselves embrace the cryptocurrency.
Here's a thought: If you were to come up with a cryptocurrency, what features does it need to make a country supportive of it?
It has to be decentralized, and the people and government/authority both willing to use it long-term.
1. What kind of situation would a country have to be in for it's government to support its population using cryptocurrency?
"Support" here should be understood as concrete changes like accepting payment or transactions using a cryptocurrency, or investing in them.
Political parties may be raising funds by creating their own tokens, but these aren't likely to be the accepted currency for everyone in the country. On the other hand, there may be cryptocurrencies used to bypass trade sanctions: Would this be an example of a cryptocurrency accepted by both the people, the government and usable by more than one country (at least, their allies)?
2. A related question would be: What kind of government system would be most accepting of cryptocurrency?
Feels like adoption of cryptocurrency will be most resistant for countries with strong currency, and vice versa. A person living in a country plague with conflict and unrest will also find cryptocurrency appealing, though in regards to this topic, there is no "central authority" in a state, is there? Would the system of government affect how appealing cryptocurrency is? (Or do you believe any government would reject it?)
Question for fun: In a zombie apocalypse, is cryptocurrency more useful as a medium of exchange (assuming the infrastructure like internet is working)? I would assume it would make it easier to safeguard your accumulated resources and let you travel with less burden.
3. Design
In your replies, I am also interested in how you would the design of the crytocurrency model: what are the incentives to "behave well"; and will it be design for use in a region, or globally (I assume the cryptocurrency will have a targeted user, as global population have too much economic, societal and political differences).
Assuming you believe cryptocurrency will never be attractive to any kind of government, then:
Would blockchain technology be adopted? If yes, how will it be used?
(This is assuming the governmental body has a basic/informed understanding of what blockchain technology is.)
Interesting questions. Regarding your title, I think small nation-states will be the first to support the use of a decentralized cryptocurrency (such as Malta, Gibraltar etc).
Regarding your other questions:
1) I think if a government is populated with free-market oriented people, they will understand the need of the people to have control over their money and will be in favor of supporting a cryptocurrency. At the opposing end, strong, authoritarian governments will have the most to lose allowing their people to freely use crypto, so they will be mostly opposed to the idea.
2) I think a limited government will be the first to embrace crypto. They have the less to lose by giving up control over money, which everywhere is a tool used to tax the people via inflation. But if the government is small, their income needs are also small so they could fund themselves through direct taxation, rather that using indirect taxation via inflation.
And yes, in a zombie apocalypse (assuming internet and electricity) cryptocurrencies have an advantage over gold, because it's easier to carry, to transmit and to keep.
3) The only design constraint that I see is regarding supply. A fixed supply model, like bitcoin, will favor deflation over long periods of time and this will, in turn, support sustainable economic growth.
Currencies are a medium of exchange and the largest medium of exchange used become money. So it makes sense to cater the currency to the global audience. This will allow users from separate corners of the world to transact between themselves without issues like foreign exchange rate differences. The bigger the market of people that transact between themselves, the bigger the division of labor and the productivity of people.
For me it doesn't make sense to limit a currency to a specific geographic area. Economic, social or political differences are not important when using money.
