Politics: Unspoken Challenge to a Government Supported Cryptocurrency

Computerworld Article

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This Computer World article gives a good snapshot in regard to the anonymous adoption of cryptocurrencies by governments. Therefore, technologists argue that the deployment of the anonymous cryptocurrency is in the future. However, none of them gives an explanation of how the issue of anti-money laundering will be addressed.

Making an argument that money is anonymous and so there’s no problem for cryptocurrency to have anonymity, it’s not a smart observation when you consider the current political environment. Therefore, the US government was involved in passing restrictive Anti-Money laundering Acts from 1986 which address terrorism and also the rising criminal activity;

“Last year, Garratt worked as a digital currency technical advisor to the Bank of International Settlements (BIS) in Switzerland. The BIS, whose purpose is to foster cooperation between central banks around the globe, has been exploring the role cryptocurrencies could play if nations begin backing them.

While the prospect of a government-backed digital currency that also provides anonymity may seem is far-fetched, Garratt noted that cash, too, is essentially a P2P process.

“It might sound strange to think about the central bank providing something that allows anonymity from itself, but that’s what cash is,” Garratt told attendees at the MIT event. “So, it’s not such a crazy thing.”

A government-backed digital currency could do away with banking fees that often target the poor who make many small, electronic payment transfers via services such as Western Union, while at the same time creating greater efficiencies. For example, the time it takes for to clear and settle funds could be greatly reduced, with  cryptography used to ensure privacy. Cryptographic keys controlling funds could be in a consumer’s control; the consumer could be issued a private key associated with their electronic funds and be able to use public keys for payments.”

 

Additionally, there is an observation that the anonymous cryptocurrencies might assist the moderate and also the low families;

“It might sound strange to think about the central bank providing something that allows anonymity from itself, but that’s what cash is,” Garratt told attendees at the MIT event. “So, it’s not such a crazy thing.”

A government-backed digital currency could do away with banking fees that often target the poor who make many small, electronic payment transfers via services such as Western Union, while at the same time creating greater efficiencies. For example, the time it takes for to clear and settle funds could be greatly reduced, with cryptography used to ensure privacy. Cryptographic keys controlling funds could be in a consumer’s control; the consumer could be issued a private key associated with their electronic funds and be able to use public keys for payments.”

 

Mercator formed a prepaid service in 2005 and from the time has been involved in an evaluation research of the challenges of servicing low and moderate-income families to bring them to the banking world and e-commerce. Therefore, the AML and also other government legislation has made this very hard. Prepaid cards were good because they charged for only the transaction the consumer did. Therefore the innovators introduced a protection at a lost very low and also legislation introduced which then made the prepaid programs unsustainable.

The best insight came from Robleh Ali questioning the basic premise requiring a cryptocurrency to be deployed on Blockchain and described for various logical use cases for the various cryptocurrency:

“Robleh Ali, a digital currencies research scientist at the MIT Media Lab, said a government-backed digital currency wouldn’t necessarily have to exist on a distributed ledger, as bitcoin does today. It could be centrally administered by the Federal Reserve and other central banks.

The question central banks need to ask themselves is what are they trying to accomplish, he said.

“Do we want a token that can integrate with this new token economy? Then they may want to use an architecture that’s similar to those [bitcoin] tokens to issue fiat money,” Ali said.

In 2013, Garratt was involved in a multi-bank proof of concept called Project Jasper, which explored the use of blockchain as the basis for a new bank-to-bank digital payments system for large monetary transfers. So, for example, if a homeowner were to sell their house, banks could use the electronic distributed ledger to settle the transfer of funds.

If the Federal Reserve or other central banks were to back digital currency, it could take on many forms. For example, it could be operated as a closed system between banks for large money transfers, such as those used for daily clearance and settlement of thousands of smaller transactions. Or, it could open central bank accounts available for any consumer’s use, a type of virtual bank account.

The Fed could also issue a digital coin, similar to bitcoin, that would represent the stored value of fiat money.”

 

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