WASHINGTON – May 30, 2019 – PRLog — With the exception of Venezuela, and now China, a government has never launched its own fully crypto or fully digital currency. A FedCoin is this hypothetical government-issued digital currency. Our paper reviews the feasibility of this currency, examining its possible traits, feasibility, and competitive advantages and weaknesses in relation to Bitcoin and the US Dollar.
To examine the feasibility of a FedCoin, it is vital to understand the nature of Bitcoin and its underlying structure, blockchain, a form of decentralized ledger technology.
The paper, researched by Sachin Meier, Georgetown University, Impact Investing Intern, notes that a FedCoin blockchain could run on a Proof of Work (PoW) system, but this makes little sense and imposes needless costs on the Government.
Whichever department or agency launches FedCoin, likely the US Treasury or Federal Reserve in the US, will want rigorous “know your customer” (KYC) information built into the protocol of FedCoin. This could be done by centralizing the issuance of key pairs or wallets, but that would require strict secrecy about the cryptographic function used.
We note that, with a decentralized ledger, governments would face an impaired ability to audit or tax, and worse, citizens would have the ability to audit their government. A centralized ledger on the other hand would eliminate many of the advantages of a cryptocurrency to begin with. We examine both cases.
We also discuss inflation. Bitcoin was conceived with a hard cap of 21 Million bitcoins (2.1×1015 satoshis). This means that at a certain point, Bitcoin’s inflation rate (currently at around 4% and halving quadrennially) will fall below zero as it gains adoption (demand rises) and coins are lost or divided into dust (supply falls). This means that someone who saves (Hodls) bitcoin will accrue more wealth over time.
We examine the open source/closed source issue, examining scenarios where FedCoin is and isn’t open-sourced.
Finally, the paper examines push vs pull systems, international adaptation of a government issued cryptocurrency, switching costs and other factors.
For a copy of the paper, please email info@creativeinvest.com.
(For more on bitcoin, see http://www.creativeinvest.com/crypto/bitcoinfaq.html)
(For more on blockchain, see https://www.creativeinvest.com/crypto/blockchain101.html)