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Author Topic: Bitcoin backed National currency, the digital standard  (Read 1526 times)
kingcolex
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February 20, 2015, 01:30:03 PM
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Alright so as many know there are tons of post about either micronations having Bitcoin as their national currency or post about how Greece should make Bitcoin their national currency, but as most of us know at this stage that just isn't possible or easy. This got me thinking about Bitcoin in whole and how it is currently but many are afraid of it's volatility but also how it is very comparable to Gold. Countries aren't willing to use gold as their national currency as it would be too much of a pain for them to keep control over but they're willing to back their currency by it. So this led me to the thought of a currency backed by Bitcoin and how this wouldn't be such an extreme issue and essentially be no risk to the government who does it anyway.

So lets go into a hypothetical world, Greece leaves the Euro and makes it's own currency the drachma and they decide they need more than just a Fiat at this point since Greece has been in such turmoil and there may not be much faith in it. Greece certainly can't buy a ton of gold to back their drachma but they could back their Drachma with Bitcoin. They wouldn't need to build a fortess like Fort Knox to securely store gold they would have to invest a small amount into Bitcoin security. They could have government exchanges or deals with banks that will allow you to bring your paper notes and have the Bitcoin sent to your bank whenever you want without fee's, they could use long lasting polymer notes and put them back into recirculation when they replenish the Bitcoin or instantly with the exchange rate lowered.

The best part is that Greece has nothing to lose from this system as they would be backing their Drachma with nothing but the faith of Greece if not, even if Bitcoin somehow failed it can be changed to a standard fiat without any issue.

As for security the private keys could be split with parts held at the UN and Greece while embedded on steel plates and using a physical encryption (or BIP32) Security could be discussed later.


So how would that sound, a countries dollar backed by Bitcoin, do you think this would work in the real constantly changing world?

The government has nothing to lose and the nations citizen has an option to exchange their currency to a decentralized worldwide storage of value. Security would be easier and auditing would be a snap compared to gold and the transferring wouldn't take months.

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kingcolex
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February 20, 2015, 04:57:58 PM
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I also should note that the government should post links on wallets how to download them and train people how to redeem and protect their coins via a website.

ebliever
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February 20, 2015, 05:02:18 PM
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Interesting idea, but one problem is that the current market cap of bitcoin is far too low for an economy the size of Greece. In principle for this to work you'd have to be able to completely "cash out" the national currency if everyone demanded their bitcoins at the same time. So if Greece had $100 Billion in drachmas issued, for example, you'd need $100 Billion worth of bitcoin backing it. But the current BTC market cap is less than $4 Billion.

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February 20, 2015, 05:23:25 PM
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i still think bitcoin should be measured against "living cost"  to reduce the imbalance of the world labour value


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kingcolex
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February 20, 2015, 05:23:58 PM
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Interesting idea, but one problem is that the current market cap of bitcoin is far too low for an economy the size of Greece. In principle for this to work you'd have to be able to completely "cash out" the national currency if everyone demanded their bitcoins at the same time. So if Greece had $100 Billion in drachmas issued, for example, you'd need $100 Billion worth of bitcoin backing it. But the current BTC market cap is less than $4 Billion.
Wouldn't the market cap drastically increase with it? That and $100 Billion in drachmas =/ 100 Billion USD their drachmas would be a lot weaker than the USD, Greece was just a hypothetical country and I see what you're saying but since Bitcoin is volatile just like gold the amount you would get per drachma would differ to, if everyone was to drop the drachmas at once for bitcoin the exchange power of drachma would be super declined making lets say their 1 drachma worth .000001 BTC

kolloh
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February 20, 2015, 05:25:01 PM
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I agree that people need to be properly trained in how to protect their coins and prevent being hacked. Without this, it will not make for a safe currency.
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February 20, 2015, 05:52:58 PM
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Interesting idea, but one problem is that the current market cap of bitcoin is far too low for an economy the size of Greece. In principle for this to work you'd have to be able to completely "cash out" the national currency if everyone demanded their bitcoins at the same time. So if Greece had $100 Billion in drachmas issued, for example, you'd need $100 Billion worth of bitcoin backing it. But the current BTC market cap is less than $4 Billion.
Wouldn't the market cap drastically increase with it? That and $100 Billion in drachmas =/ 100 Billion USD their drachmas would be a lot weaker than the USD, Greece was just a hypothetical country and I see what you're saying but since Bitcoin is volatile just like gold the amount you would get per drachma would differ to, if everyone was to drop the drachmas at once for bitcoin the exchange power of drachma would be super declined making lets say their 1 drachma worth .000001 BTC
Let's say Greece declared the New Drachma, and announced they would issue 100,000,000 New Drachmas. And they promised to not print any more (except to replace those withdrawn from circulation/lost/destroyed), so the money supply would remain at 100,000,000 ND.

Let's say they promise and put it into law that 1 ND can be redeemed for 0.01 bitcoins. So in principle the entire ND supply could be converted into 1 million bitcoins. Since there are over 13 million bitcoins this could be done.

The problem lies in generating value for the ND. If Greece did nothing else, the ND would simply float with the price of BTC, and each ND would have a current value of about $2.50, with their entire money supply worth only $250 million. For a nation the size of Greece that simply wouldn't work.

They could force the issue by, for example, requiring all taxes, licences, fees, bills and so forth be paid with ND. This would force Greek citizens to use the ND currency. The free interconvertibility between the ND and BTC would then presumably force a strong rise in the price of BTC. The real question, though, is why the Greeks or anyone else would be interested in enriching those of us who happen to hold BTC?

It would make more sense for them to issue a new currency and promise, cross-my-heart, not to inflate it, with the same requirements forcing citizens to use it. And perhaps a way to do that would be to do as you suggest and tie the currency to a cryptocurrency - but a new one they design and release for the purpose, with no bagholders in position to be instantly enriched. It would be a challenge to coordinate and execute that without software bugs, exploits or mishaps in the mining community that would have to form. Not impossible, but risky without a well-conceived plan and widespread support from key constituencies and bodies of experts.

Luke 12:15-21

Ephesians 2:8-9
kingcolex
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February 20, 2015, 06:02:39 PM
 #8

Interesting idea, but one problem is that the current market cap of bitcoin is far too low for an economy the size of Greece. In principle for this to work you'd have to be able to completely "cash out" the national currency if everyone demanded their bitcoins at the same time. So if Greece had $100 Billion in drachmas issued, for example, you'd need $100 Billion worth of bitcoin backing it. But the current BTC market cap is less than $4 Billion.
Wouldn't the market cap drastically increase with it? That and $100 Billion in drachmas =/ 100 Billion USD their drachmas would be a lot weaker than the USD, Greece was just a hypothetical country and I see what you're saying but since Bitcoin is volatile just like gold the amount you would get per drachma would differ to, if everyone was to drop the drachmas at once for bitcoin the exchange power of drachma would be super declined making lets say their 1 drachma worth .000001 BTC
Let's say Greece declared the New Drachma, and announced they would issue 100,000,000 New Drachmas. And they promised to not print any more (except to replace those withdrawn from circulation/lost/destroyed), so the money supply would remain at 100,000,000 ND.

Let's say they promise and put it into law that 1 ND can be redeemed for 0.01 bitcoins. So in principle the entire ND supply could be converted into 1 million bitcoins. Since there are over 13 million bitcoins this could be done.

The problem lies in generating value for the ND. If Greece did nothing else, the ND would simply float with the price of BTC, and each ND would have a current value of about $2.50, with their entire money supply worth only $250 million. For a nation the size of Greece that simply wouldn't work.

They could force the issue by, for example, requiring all taxes, licences, fees, bills and so forth be paid with ND. This would force Greek citizens to use the ND currency. The free interconvertibility between the ND and BTC would then presumably force a strong rise in the price of BTC. The real question, though, is why the Greeks or anyone else would be interested in enriching those of us who happen to hold BTC?

It would make more sense for them to issue a new currency and promise, cross-my-heart, not to inflate it, with the same requirements forcing citizens to use it. And perhaps a way to do that would be to do as you suggest and tie the currency to a cryptocurrency - but a new one they design and release for the purpose, with no bagholders in position to be instantly enriched. It would be a challenge to coordinate and execute that without software bugs, exploits or mishaps in the mining community that would have to form. Not impossible, but risky without a well-conceived plan and widespread support from key constituencies and bodies of experts.
My thoughts would not be an exactly tied amount like 1 New Drachma = .01 but more or less the government has a biannual or quarterly adjustment that 1 drachma = .01 this quarter or next quarter .012. This would just help to kickstart the new drachma from just being a pure fiat that could go poof and allow people to have something of value not tied to the government behind it, even if it is a lot less then what the new Drachma is worth the government can have the safety net to help bring more growth to their local economy.

ebliever
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February 20, 2015, 06:19:53 PM
 #9

If the government varied the conversion rate, then it would need to have criteria for doing so. And politics being what it is, if you allow variation in the conversion rate then you can be guaranteed there will be pressures and temptations to vary the rate in a manner advantageous to powerful interests and constituencies. Over the long run that's no different than just having unbacked fiat currency. It would be my strong opinion that any attempt to produce a currency backed by crypto, should be at an absolute fixed rate of exchange with no legal manner by which the rate could officially be adjusted. The sole caveat to this would be if the parameters of the crypto itself (such as the coin supply, transaction fees or the like) were altered by the mining community.

Luke 12:15-21

Ephesians 2:8-9
tadakaluri
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February 21, 2015, 03:47:14 AM
 #10

It is not possible to every one in a country can train how to use Bitcoin wallets and how to protect them.
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February 21, 2015, 08:32:40 AM
 #11

That would be great but highly unlike to happen.
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February 21, 2015, 09:50:52 AM
 #12

The country need to determine the right conversion amount to back the currency. If you can't afford to buy gold, similarly bitcoin isn't cheap either. You can't possibly set a million bitcoin which is probably too low an amount. So theoretically if you set that amount, the size of a whole nation economy is essentially can be bought by few early adopters?Huh

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February 21, 2015, 07:24:39 PM
 #13

The volatility is too high to be adopted as a national currency imo.

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