The case for a government-created national blockchain
There’s no doubt that just over a decade after the launch of bitcoin, cryptocurrencies have exploded in popularity — today, 1000s of blockchains exist and the amount of tokens built on said blockchains reaches into astronomical numbers, as anyone is able to easily create a token for whatever reason and bring it to thousands if not millions of people.
Despite the immense popularity of cryptocurrencies and blockchain technology, they remain relatively unknown by governments — many nations have only just begun the process of proving legal — or illegal — status to cryptocurrencies in the past 2 years. With this newfound government interest, I propose that governments should create incredibly robust and organised blockchain networks to bring billions of dollars of business towards a national economy. Consider this situation — the US government issues a smart contract capable blockchain capable of thousands of transactions a second, and on top of that have the Federal Reserve issue a USD token which can be backed up 1:1 by a physical US dollar. This would revolutionize the economy, as the US dollar could be transacted virtually or at the point of sale without having physical cash held, and a genuine tokenised USD would exist. The US government would earn billions of just the initial sale alone, not to mention a potential PoS(proof-of-stake) architecture bringing further incomes for the government and it’s people, and would also provide a 100% reliable platform for programmers to create smart contracts/tokens on, heavily expanding the size of the American economy. This situation can be easily replicated in any nation on this Earth, and I sincerely hope that my country of Australia pursues this.
Firstly — what is the difference between a cryptocurrency and a blockchain?
A blockchain is the actual network of data, which is entirely immutable once a block (a record of all data created/used etc since the creation of the last block, generally transactions) is created, therefore becoming a permanent and open record of data. A cryptocurrency, also called a coin, is some form of asset able to be held by someone, able to be used only on the specific blockchain which it originated from. For instance, the Bitcoin Network is a blockchain, whereas Bitcoin, or BTC, is a cryptocurrency. Not all blockchains need to have a cryptocurrency attached, as the blockchain can simply exist as a record of data, but most blockchains are created for use with cryptocurrencies and transactions. A token is a type of cryptocurrency which doesn’t have it’s own blockchain, but instead utilises another blockchain to work.
What the perfect national blockchain would look like
If there’s one single factor I believe to be true more than anything else in this writing, it’s that a national blockchain must be built with a dPoS(Delegated proof of stake) architecture, and to have no transaction fees. First, let me explain dPoS.
In a dPoS blockchain, certain ‘stakers’ — wallets of entities or people who hold a large proportion of supply — are voted by some or all holders of the cryptocurrency to become validators of blocks, thus making a very small amount of validators needed to perform and come to consensus on a transaction, allowing for incredibly fast transactions speeds. This is important, because a blockchain encompassing an entire nation should aim to work quicker than the time needed for a person to swipe their credit card and type in their PIN, otherwise people would just use credit cards for an everyday transaction. dPoS consensus networks by their very design are able to work quicker and much more efficiently than PoW or even normal PoS systems, because a significantly smaller amount of processing power is used in the block creation process due to their being significantly less actors needed — for instance, Tron uses a mere 27 validators to create a block compared to the millions of people who mine Bitcoin to create a new transaction in the BTC network. Naturally, this is a ridiculously green initiative, as PoW systems draw incredible amounts of power to produce ultimately slow transaction speeds — for instance, the BTC blockchain consumes more electricity than the entire nation of Switzerland, and still manages a mere 6 transactions per second. Tron, a dPoS system, is able to manage 2000+ transactions per second, and EOS, another dPoS system, is able to handle around 4000+ transactions per second, and claims that well over a million per second is theoreticaly possible.
Transaction fees are used alongside new mintings as a way to reward those who act as validators on a blockchain. For instance, every transaction on the ETH blockchain, whether it is for a token or for the native currency, requires the user to pay an additional fee in ETH (called ‘gas’) to actually have the transaction go through. As someone who has personally created an ERC20 token (any currency other than ETH on the ETH network) which was some peoples first introduction to cryptocurrency, it can come as a shock to many people that the tokens they have received can not be moved to an exchange to be sold, or used in some utilitarian manner, without first purchasing some ETH to pay transaction fees which can go up to 5 cents on a normal day. If crypto were to be used for everyday transactions, generally this won’t cause any issue. For instance, purchasing $80 worth of groceries would generally not incur a negative reaction from the purchaser if they were told they also needed to pay a 5 cent fee, but for smaller transactions, it can cause general cost increases well over 1%. However, many people who are not familiar with cryptocurrency may become confused with having to use two different cryptos, such as a national currency token and also the blockchain token, to complete a transaction. Imagine if the person in front of you in the line at the store had intended to pay for their groceries with USDT, and when it got to paying they realised they had no ETH. It would be incredibly frustrating and hold the line up for minutes.
Therefore, having 0 transaction fees would prevent any confusion during the initial phases of fully integrating a national cryptocurrency into society and allow the whole process to run smoother. But what about the validators? How are they to be rewarded? Rather than have them be rewarded by transaction fees, the small amount of validators chosen by the dPoS system would be minted brand new coins each time a block is created. This does mean that the cryptocurrency would have a theoretically infinite supply subject to whatever inflation the chain creators desire it to be, which ultimately is not an issue. Several currencies have uncapped total supplies.
However, some restrictions can be put in place to prevent bad actors from temporarily slowing the network, thereby making it even faster. Having a fee to deploy a smart contract will prevent people from spamming out transactions of smart contract deployment which could take up a significant portion of the transactions per second. By instituting a small fee, potential disruptors to the network are put off.
The blockchain itself must be able to support the deployment of smart contracts and dApps, to allow for the blockchain to be utilised by people worldwide to develop on, and to increase the chains utility and public exposure. Several successful crypto tokens, videogames and financial companies could be launched using the blockchain to perform a variety of functions, provided that the ability to code and build on the blockchain exists.
How does this change the way transactions are performed?
Presuming the government wants to make the launch as smooth and impactful as possible, they would create auxiliary technologies to go along with the launch of the blockchain — some sort of browser extension wallet (think metamask) that can be twinned with a phone app. This would allow for users to simply scan the QR code displayed at the point of sale of the store they are at, and the transaction would begin. But how do we ensure that the buyer or seller is not being unfairly traded with? Everyone is aware of the Bitcoin pizza purchase of 2010 which ended with those same pizzas being worth $80 million ten years down the track. How do make sure the price and earnings are always consistent?
Well, we tokenise the national currency. By having the government officially tokenise alongside the launch of the blockchain, the ability to and restrictions on tokenization remain entirely within the governments, and all future tethers and standards have less legitimacy. However, it must be noted that the price of contemporary USD tokens tend to fluctuate at a price slightly differing from the USD — generally between $0.99 and $1.01. This is due to the free market trade of these currencies, and that the coins they are being traded against can fluctuate in price during the time it takes the transaction to complete.
To counteract this, which the government might not actually want to do depending on how strongly they view the fluctuation issue, they could place legal restrictions on the trade of their tokenised currency. Take for instance this hypothetical Australian example :
- The Australian dollar is tokenized into an Australian Dollar Token (ADT), built on the National Blockchain
- The Blockchain Cryptocurrency has no restrictions on trade
- The ADT is restricted from being listed on any exchange, and can only be traded to and from the government or related agency
- This agency acts similarly to a bank. Users who deposit $1 Australian Dollar will receive exactly 1 ADT in return, no fees
- Users are free to return their ADT at any time and receive the equivalent in Australian dollar into their bank account, no fees
- The agency makes a profit by investing the AUD deposited with them, similar to a bank
This method prevents the price fluctuation as 1 ADT is forced to be exactly equivalent to $1 AUD due to the method of distribution, and fluctuation issue is solved.
By forcing the value to not fluctuate, the ADT suddenly becomes entirely usable within everyday transactions rather than being solely for online purchasing of other cryptocurrencies. With the aforementioned mobile app acting as a wallet, users are able to simply scan the corresponding QR code and have their ADT be sent through to the business. Then, the business owner can return home, and view how much ADT they have on both their phone and their wallet, and decide what to do with it from there.
The auxiliary, government produced technologies will also assist in the widespread adoption. A simple phone app acting as a wallet is much more cheaper to install than when EFTPOS was introduced and businesses needed to purchase EFTPOS machines to get with the times economically. It works on the back of an already widespread technology — the computer and the smartphone.
What are the advantages of a national blockchain?
There is a lot of talk going around that as we progress through the next decade, the world will become more and more cashless and all transactions will soon be done entirely through credit cards, with the people of tomorrow never touching physical money again. We can see that this occurring, as recently Australia made it a criminal offence to perform a transaction with more than $10,000 in physical cash. The notion of ending cash and moving to total cashlessness I will not comment on, but regarding it’s implementation, putting it in the hands of banking corporations is not necessarily the best route. Interest rates in many countries in the West, such as Switzerland and Japan, are actually negative. If all money had to be kept with the banks by law, then people would be losing money everyday with no say in the matter. This would make the struggle of everyday life worse, as people would need to factor in an additional cost on their lives. It may not be so far away.
If the world truly must become cashless, then instituting a national blockchain is a must. It puts the control of funds more in the governments hands than in the hands of corporations, and if people would save with the tokenised currency, they would not be subject to arbitrary negative interest rates. At the same time, they trade off positive interest rates if they switch to the token. Really, the banks and the blockchain should both exist, and the consumer should be able to switch between the two for whatever reason they choose.
Now to the advantages.
Everyday transactions would become much more efficient. Consumers would simply be able to scan their phone and have the transaction occur in all of about three seconds, and possibly less. EFTPOS systems require users to swipe their card, and type in their pin, which can be quite slow. Many EFTPOS systems have switched to tap and pay to increase speed. There is no reason why the National Blockchain can not also issue cards tied to a users crypto wallet to replicate a similar situation. This would be revolutionary as it would fulfill the goal cryptocurrencies have failed to do so since day 1 — to truly replace transactions and become the money of the future.
The technological and educational prowess of the nation would increase. By creating a blockchain capable of supporting infinite tokens, smart contracts and decentralised applications, and for that blockchain to have government backing, the ability of people nationwide to enter the computer science scene increases exponentially. Ethereum, a blockchain which allows for smart contracts, is by value the second biggest cryptocurrency in the world. However, many more successful tokens have been launched on that blockchain which also by value are some of the biggest cryptocurrencies in the world — think LINK, BAT etc.
A nation is able to pioneer the still early technology of the blockchain to attract people from all around the world to build incredible technologies on top of the blockchain, and the nations youth can become highly educated masters of a new technology, allowing the nation to be one of the most educated and intelligent in the world.
Conclusion
If Bitcoin were released today, it would not be the most valuable cryptocurrency by a mile. It would be panned for it’s low transaction speed and primitive PoW validation system, compared to the much smoother and more powerful cryptos existing today. Yet, Bitcoin is still the king of cryptocurrencies, having a market cap nearly 8x the second biggest cryptocurrency.
Similary, the nation which introduces the first government blockchain as detailed in this article will probably also have the greatest blockchain. By the time every nation starts doing it, there would be no reason to construct your own — simply tokenise your currency on a seperate blockchain. Eventually the market would become saturated and the originals would stand strongest.
If the world is to become cashless, the blockchain is the way to do it. I sincerely hope that countries around the world, especially my very own Australia, will one day soon be able to implement these very technologies detailed in this article. It is an incredible way to shoot a countries economy and industry forward, and opportunities to structurally enhance an economy come rarely.
Kayde Smith
3/03/2020
