Government-issued cryptocurrencies: An overview
When Bitcoin started back in 2009, one of its core ideals was decentralization. In other words, Bitcoin didn’t need a centralized authority to issue it and, as such, its legitimacy and value relied on the interconnected system of digital ledgers verifying the transactions.
Eleven years and over six thousand crypto assets later, we live in a very different world where governments are finally getting involved in the world of cryptocurrency. Since day one, governments have been keeping an eye on the cryptocurrency market. Let’s not forget the UK’s investigation on cryptos back in 2014 as one very vocal example.
As cryptos have gained popularity, blockchain technology has expanded into other areas, for example, it’s being used by software outsourcing companies like BairesDev to provide innovative solutions to their clients. Governments are following the trend and are both implementing blockchain solutions as well as trying to legislate over crypto-trading.
Right now, opinions on cryptos are as diverse as our cultural differences. Thus, some countries like Israel tax them as assets, others, like Bolivia, actively prohibit trading with them, and others like Belize, don’t have any particular legislation related to cryptocurrencies. But regardless of policies in favor or against, everyone is paying attention to them.
What’s more – some countries have gone one step beyond and are actively developing or implementing their own crypto-based assets. The question, however, remains: is that a good idea? Should traders invest in these cryptocurrencies? Are they even cryptocurrencies?
Ecuador’s ill-fated experiment: The first steps
Back in 2015, Ecuador became the first country to officially launch a digital currency, the Sistema de Dinero Electrónico. While the system wasn’t a cryptocurrency in any sense of the word, it did make the news as the first state-sponsored e-wallet.
Many saw this as an optimistic take on digital currencies from a progressive government, while critics were quick to point out that a few months prior Ecuador had banned bitcoin and crypto trading. So it looked more like a power move to monopolize digital currencies than a true move towards its free adoption.
Ironically, while Ecuador’s government criticized cryptocurrencies and pretty much painted them as a sham, Bitcoin trading kept growing. In 2018, while bitcoin kept getting stronger, the government’s experiment came to a sad end, as they announced that complete deactivation of the system would happen in mid-April.
This was a hard blow, not only for Ecuador but for critics worldwide who claim that cryptos lack value since they aren’t backed by an institution or country. In the end, it was the decentralized system that survived the test of time.
Latin American’s second attempt: the Petro
As Ecuador’s digital currency was crashing, another Latin American country caught the attention of crypto traders: Venezuela. This time, the state-sponsored coin, the Petro, was based on blockchain technology, could be used as a trading currency inside and outside the country, and its value was backed by Venezuela’s oil market.
It sounded too good to be true – and it was. The Petro’s launch was fraught with a myriad of troubles, from vague statements from the Venezuelan government to outright lies. For example, officials stated that before the release of the Petro they had already sold over 700 million dollars.
When crypto-traders checked the blockchain they quickly realized that every single Petro was owned by a single wallet and there wasn’t even one transaction. So, was the Petro a scam? Not really. The Blockchain exists, and people have been able to buy and sell Petros.
Nevertheless, the currency is shrouded in mystery and drama. For example, Joey Zhou, Etherium’s creator, pointed out that the Petro’s whitepaper was a blatant clone of Dash’s. And the latest controversy seems to be that the Petro was hard-forked a couple of weeks ago, with the block explorer showing that the genesis block was mined in 2018 and on May 5th, 2020.
While the Petro might not have been Venezuela’s solution to US sanctions, the fact that a state would even turn to a cryptocurrency as a strategy to confront the US is a clear indicator of how big role cryptos are going to play soon.
The world is going crypto
Government-issued cryptocurrencies might have started with the wrong foot, but 2020 has been full of surprises (aside from a pandemic, that is). Seoul, the capital of South Korea, wants to launch its own S-coin within the next year, a digital currency that is given as a reward to citizens for doing their civic duty (like paying taxes).
The S-coin might be smaller in scope than Petros but, at the same time, it’s an interesting experiment in social engineering, a way to reinforce civic behavior that can be exchanged for prizes and other social benefits.
China is the country to keep an eye out for. With the recent release of the Blockchain Service Network and some leaked images online it seems like China is preparing to release a digital-yuan any day now.
If that were the case, that would make China’s cryptocurrency the first digital currency backed by a truly massive economy, and with the right incentives, it could even be a rival to the dollar in international markets.
Government issued cryptocurrencies – Conclusion
Of course, for many, the centralized nature of government-issued digital currency defeats the purpose of cryptocurrencies, to have a safe and open system that doesn’t rely on the whims of a particular entity, but rather that derives its value from its users. Will people bet on a digital currency that has the same limitations we were trying to get away from? Only time will tell.