In the recent
US House hearing on digital currency, most of the lawmakers were worried that a cryptocurrency would out-compete the US dollar, and so they were interested in creating an official USD cryptocurrency to preempt this. (Mainly they were worried about a cryptocurrency created by a different government, but some also contemplated Bitcoin achieving dominance.) This sort of "FedCoin" is a hilarious effort doomed to fail.
Most people are fine with using things like credit cards, bank autopayments, bank-linked payment apps, etc. They're easy enough, and since the payments are reversible, they're highly forgiving of the average person's absolutely abominable security practices. These people are not going to switch to either Bitcoin or FedCoin any time soon, and they can be ignored for now.
Of course, the above-mentioned traditional payment methods have a huge list of problems. Listing just a few:
- Pull-based payments are inherently insecure.
- Payments based on shared secrets like credit card numbers are inherently insecure.
- The person you're paying has to know your personal information.
- Your intermediary has to know your payment history. Most credit card companies actively sell this information to advertisers, all of them are probably vulnerable to Equifax-like breaches, and all of them are open books to government agencies.
- USD is inflationary, and its future is highly unpredictable and (depending on your viewpoint) maybe dubious.
- Accepting payments is costly due to fees and chargeback risk.
- Accepting payments requires significant set-up time, and is impossible to do privately.
- The entire thing is debt-based and filled with intermediaries. If $5 is moved, then multiple parties are simultaneously borrowing $5. It's fragile and inefficient.
If you're in the minority of people who runs into these problems, then you're probably going to use cash if possible, which solves most of those problems. If you're online, then you'd be interested in accepting BTC, which also solves most of those problems.
But any FedCoin likely to be created is going to solve few of those problems, if any:
- Banking protocols have historically almost never been designed securely, and I doubt that any FedCoin would change this pattern.
- Because the average person can't handle security, the system is either going to be forbidden to the average person or it's going to be reversible.
- Governments hate privacy.
- The very last thing that governments would give up is their power to print money.
So any FedCoin is just going to be another credit card system. But people who already like credit cards will just continue using their credit cards. There's no market for it.
Now, a smart statist might recognize all of the above, and abandon all of their other money-related goals just in order to maintain their power to print money. This could be done by implementing the 1996 NSA paper
How To Make a Mint (which I often like to evangelize). The Federal Reserve would run some powerful timestamping servers which everyone would use, and then the rest of the system would be based on public-key crypto directly between payers and payees, probably aided by dedicated hardware. This would be
better than Bitcoin in several ways:
- It would be 100% anonymous. Not even the government could unmask you. (*)
- Payments would be instantly irreversible and nearly free.
- There would be no need for anyone but the Federal Reserve to run any heavy full nodes.
- The value would be tied to USD, and therefore less volatile than BTC currently.
- More complicated smart contracts could be implemented, since the Fed could act as a built-in smart-contract oracle.
The only thing that BTC would have going for it vs this type of e-cash would be its decentralization and finite supply. Valuable properties IMO, but I would
never expect BTC to out-compete this e-cash as long as the USD was reasonable stable, whereas I do think that BTC can out-compete either today's USD or any likely hypothetical FedCoin over a long period of time.
But I would be shocked if any government tries this. Many will try the pointless FedCoin-type thing, but they are too arrogant, anti-privacy, and incompetent to create an actually-useful e-cash system like this.
(*Note that it would be possible to design the system such that certain backdoor keys could be used to unmask payments. Everyone would know about this in advance; it wouldn't be a
secret backdoor. Maybe something like this could be made tolerable to the average person, though no matter what measures are in place at the start, if any backdoor is tolerated at all, then it's only a matter of time before the NSA is looking through every transaction's history.)
(There is absolutely no need to shoe-horn a block chain into such a system, BTW.)
