The case for a government-created national blockchain. Revisited 2021

In the March of 2020 I wrote an article on the internet where I clamoured for the establishment of a national cryptocurrency. For the foreseeable future, I see it as being one of the few opportunities given to Australia to take advantage of coming economic restructuring in both a cheap, effective, and highly rewarding, manner. The creation of a national cryptocurrency blockchain, with a tokenised Australian dollar being used without fees for everyday transactions as part of it, would fundamentally inject billions into the value of the Australian economy (the total value of all Bitcoin coins is, as of writing, nearing $1 trillion USD. The total value of all Ethereum coins is, as of writing, nearing $400 billion USD), and, by granting a strong, flexible blockchain for smart contracts, a national blockchain would allow for millions of both Australians and foreigners to utilise the technology and add value to it in the increasing digitisation and tokenisation of the world.

Of course, these words mean nothing to someone who does not know what cryptocurrency is. It is important to understand the terminology regarding cryptocurrencies, and so too understand how they work:

A blockchain is a network of data that exists as a collection of blocks (a group of transactions or data changes that have occurred) which make up the cryptocurrency’s network. Once a block has been produced, it becomes unchangeable and serves as a record keeper. How much data is stored, and what type of data is being stored, is determined by the cryptocurrency’s specifications and capabilities. If a cryptocurrency is specified as having a block time of, say, fifteen minutes, then one can expect any particular block to be a collection of all the transactions and data changes that occurred in the fifteen minutes before the timestamp that was set at the block’s output. Blocks can be outputted by various methods, known as consensus algorithms, which set the standard for how a block is to be produced. The Bitcoin network, for instance, uses a proof-of-work consensus algorithm, which demands blocks be produced through the use of mining. Mining is the process of several computers competing to solve complex mathematical equations and get the answer, known as the hash, that the next block is asking for. The first miner to produce this hash is rewarded in cryptocurrency. Proof-of-stake, an alternative consensus algorithm, is a broad term regarding certain consensus algorithms which have varying methods of determining who creates the next block — some choose randomly, some allocate the largest balance holders this task. Both proof-of-work and proof-of-stake are subject to criticism. Proof-of-work algorithms draw immense power because anyone can hook into the network and act as a miner. The process of completing the mathematical equations for many cryptocurrencies is intensive on computer hardware, leading to hardware wearing out quickly and even shortages or price jumps in the hardware market, and massive power draw. The combined mining rigs validating the Bitcoin network currently draw more power than the entire country of Switzerland, and, ultimately, this power is used to solve mathematical equations which matter to no one. Proof-of-stake, on the other hand, utilises little electricity, but can be seen to be far more prone to centralisation by wealthy coin owners. Proof-of-stake delivers staking rewards to holders, similar to dividends for stocks.

A cryptocurrency can refer generally to two things ­– a coin or a token. A coin is the primary cryptocurrency allocated to a blockchain. For instance, Bitcoin, or BTC, is the coin of the Bitcoin network, a blockchain. Similar, Ether, or ETH, is the coin of the Ethereum Network, a blockchain. However, the similarities stop here.

Certain blockchains are built in such a manner that they allow smart contracts to be built on top of them. A smart contract is a piece of programming capable of being automatically executed according to its code when certain conditions are reached, or triggers triggered. Several smart contracts have tokens attached to them, which serve as an alternate cryptocurrency which is not a coin, but instead a token. A token is, essentially, a lightweight cryptocurrency built on top of a coin’s blockchain. For instance, ETH, the coin of the Ethereum network, has a total value nearing $400 billion USD. Built on top of and utilising that blockchain are several tokens, such as Chainlink, with a valuation of over $10 billion USD, and HuobiToken, with a valuation of over $2 billion USD. Tokens built on the Ethereum network are required to use ETH to cover transaction costs, essentially paying a fee for the privilege of utilising a blockchain. Not all smart contracts need to be enabled with tokens alongside them — some can be financial services, some gambling services, and utilise the coins or tokens which they so desire.

Smart contract capable blockchains are fundamental drivers of value, for a smart contract’s demand not only raises the value of whatever is associated with the smart contract, but also the value of the blockchain. This comes in addition to the power and capability provided by the blockchain itself.

Australia’s national blockchain must be smart contract capable. Smart contract capability allows for developers to create thousands or even millions of programs and tokens on the blockchain, increasing the value of our nation’s blockchain and providing a strong boon to the technology sector. In addition, it must be capable of not being slogged down over time as its utilisation grows. It can do this by being constantly updated to scale with the increased utilisation to ensure speedy transactions and low transaction costs.

Australia’s national blockchain must be proof-of-stake, and, in particular, must be a delegated proof-of-stake (dPos) system. Tron, a dPos cryptocurrency, has its coin, TRX, act as a voting mechanism, where every wallet has the opportunity to use its wealth as voting power to select certain wallets to be ‘super-representatives’, a collection of 27 wallets which act as validators. This enables the Tron network to be incredibly fast due to the low amount of validation which needs to be done, with the network boasting a transaction speed of over 2000 transactions per second. Australia’s national blockchain should, ideally, should function on a similar system, with 27 or less super-representatives to ensure that it is capable of handling an entire nation’s worth of transactions. As the creation of this cryptocurrency is done by the government, the government will initially have 100% of the supply. This allows them to delegate, before the general sale of the coins, certain proportions of the total supply to be granted to various organisations who are able to act as validators and earn income from their holdings. The Treasury’s share should be the largest. This allows the Government and relevant authorities to achieve validator status initially and hopefully hold onto that status for good. Australia’s Government would then make millions or even billions from the future sales of the excess coins into general circulation, and the staking rewards they earn.

Ideally, this blockchain should not simply serve as a powerful technology for both investors and developers. To truly revolutionise Australia, the blockchain should facilitate everyday transactions being performed through cryptocurrency. The problem with this, then, lies in the fluctuating value of the coin attached to the blockchain — if it is designed to be subject to the rigors and demands of investors and developers, how is it to maintain value? In the May of 2010, a Bitcoin user facilitated a real-world transaction, in which they spent 10,000 BTC on two pizzas, delivered. Less than a year later, those 10,000 BTC which were traded for those pizzas would have been valued at $10000 USD, and, just seven years later, would have been worth around $180 million USD. Therefore, using a blockchain as a standard for everyday transactions is impractical and damaging to an economy, for businesses would be hesitant about adopting and consumers hesitant about spending out of fear of a loss of value. Therefore, the solution is to tokenise the Australian dollar.

The tokenisation of the Australian dollar would lead to a government regulated token held with parity to the AUD running on the national blockchain. With government legislation backing it, the tokenised dollar can legally act as a medium of tender within the nation. The tokenised dollar should be hardcoded to have a special exemption on the blockchain, not requiring it to also spend a coin as a transaction fee. This means there would be no excess cost on the transaction that uses the tokenised dollar. This is paramount to the speed and ease of using the blockchain as a legitimate form of transaction. The rollout of the technology would be incredibly stunted if people got to the front of the line ready to pay, and then realised they could not pay, for even if they had the necessary Australian Dollar Token(ADT), they did not have the necessary blockchain coin to cover the fee of the transaction, and confusion would ensue. Therefore, the ADT must be granted an exception as the only token or one of the only tokens on the blockchain capable of being sent without the blockchain’s coin also as payment for the transaction.

For the government to make the rollout and adoption of the token as smooth as possible, they would also create the necessary financial instruments for transactions to occur in the everyday world. These would include a wallet to store the blockchain coin, the ADT, and all the other tokens on the blockchain the user wishes to store in that wallet. This wallet should be allowed to have its address represented in some form of matrix barcode, such as the QR code, the Aztec code, the Data Matrix, or the Bokode, which can allow for businesses to either have this code printed or displayed on their registers, their checkout machines, or simply sitting on the counter, thus allowing for customers to simply scan the code with the phone. Once scanned, the wallet on their phone would confirm whom the address belonged to (such as bringing up the business name, or the specific location if it is a chain), and ask for confirmation to send the ADT in the specified amount to the specified wallet. The government should also add verification for businesses and companies, to prevent scams.

Additionally, banks which utilise the ADT can issue cards connected to the blockchain or allow users to open accounts on the blockchain which have their value amalgamated with the user’s normal accounts into a debit card capable of being used with EFTPOS machines.

Imagine the following hypothetical situations as examples of the everyday uses of this service:

1. A customer enters their local W store, a chain corporation with hundreds of stores across Australia. They grab a chocolate milk, on sale at $2.25, from the shelves. They then head to the self-service checkouts. After scanning their chocolate milk, and choosing to pay, they are presented with four options — cash, card, gift card, or cryptocurrency. They pick cryptocurrency. A QR code appears on screen. They pull out their phone, open their wallet app, and use their phone camera to scan the QR code. A dialog box pops-up, asking for confirmation. It is headed “W”, with the subtitle “Smithton”, for they are at the W store in Smithton. A blue tick appears next to the name to confirm it is, indeed, legitimately the W store in Smithton and not a scam. The box asks the user to either confirm or reject the sending of 2.25 ADT to this company’s wallet. They confirm, and both the phone and the self-service checkout display a green tick to indicate the transaction is complete.

2. A customer enters a small, independent corner store. The store owner’s phone is mounted on the counter. The customer grabs the chocolate milk being sold at $2.25 and brings it to the counter. The cashier scans the item. They ask for the preferred form of payment, and the customer chooses cryptocurrency. The cashier grabs the store phone and chooses the ‘Request’ function. They type in 2.25. The QR code is presented, which the customer scans, faces the same prompting as before, and confirms. Green ticks appear, and the transaction is concluded. This functions almost identically to EFTPOS machines at stores today, where workers input the required amount onto the machine and then ask the customer to swipe their card. EFTPOS machines could even become cryptocurrency friendly, and businesses would not even need to purchase new machinery to facilitate the usage of cryptocurrency in their business.

3. A customer enters a small, independent corner store. The store has their QR code printed out on a piece of paper, which is taped on the counter next to the register. The customer grabs the chocolate milk, again sold at $2.25. They bring it to the cashier, who scans the item and asks what form of payment is desired. The customer chooses cryptocurrency. They scan the printed QR code. They are then asked to manually type in the amount to send to the verified business. They type in 2.25, confirm with the owner, and click send. A ‘transaction confirmed’ dialog appears, which indeed confirms that 2.25 ADT has been sent to the verified business’s wallet. The customer then shows the owner this dialog, and the transaction is completed.

4. Perhaps the simplest method available would be the provision of debit cards, both physical and virtual, which function identically to the debit cards of today that are linked with systems such as Apple Pay. This would allow users to scan their phone, smartwatch, or card at an EFTPOS terminal and make an instant payment through the blockchain.

This does not even cover the powerful financial and investment capabilities that a blockchain would grant the opportunity to be created. If any one thing can easily grant economic gain, it is a cryptocurrency network for Australia. It would revolutionise the way the country completes transactions, bring immense wealth to the country, and place it at the forefront of the technology world.

To rapidly begin the actual practical use of the national blockchain, the Australian government should immediately move to create a state-owned cryptocurrency services company under which an umbrella of corporations exist. Three important services immediately come to mind:

1. A centralised exchange. This is an obvious step for the government to take. A centralised exchange refers to a large and strongly regulated exchange similar to a stock market, requiring a user to provide identification and create an account. This would allow them to directly send fiat funds from their bank account to the exchange and withdraw fiat to their bank account. This would function similar to a bank-aligned stockbroker, where users can transfer from their bank account to an account on the brokerage platform, and trade with various financial instruments.

2. A decentralised exchange. A decentralised exchange utilises decentralised finance (DeFi) principles to allow the largely unregulated flow of funds through the swapping of one token for another, alongside the ability to earn interest and fees for those who provide liquidity to facilitate the exchange. There is no need for an account, with users simply needing to connect their wallet to take part in a decentralised exchange. Furthermore, prospective projects can easily list themselves on decentralised exchanges without the approval of an executive arbitrator.

Decentralised exchanges generally send most of the fees back to investors, with those who stake their tokens (essentially, locking them in a smart contract to enable transactions or another function) able to earn large amounts of interest, similar to earning dividends for stocks. This will open a whole new market for prospective investors, both foreign and Australian, who seek to maximise their monetary gain by providing capital to an Australian platform. This would see a large amount of financial inflow to Australia. Some decentralised exchanges today see billions of dollars of activity every day, and it would not be unreasonable to assume that Australia can replicate that success.

3. A tokenised version of the stock market. This would feature tokenised versions of stocks listed on the ASX being tradeable as CFDs. This would mean that those who purchase a tokenised representation of a stock are not actually purchasing the share in a way that would give them all the member benefits, and thus would not be counted as a substantial owner of a company. Instead, these tokenised stocks would simply function as representations of a listed share’s price, enabling trading surrounding the price movements without having to go through traditional stockbrokers. This may become the preferred method of small-time overseas investors who wish to avoid paying overseas transaction fees to trade Australian shares. This would cause a new inflow of cheap capital surrounding, but not directly connected to, the Australian stock market, allowing the Australian government to profit off a newly spiked interest in the ASX.

Australia’s banks are welcome to be part of it and offer services on the blockchain, and make billions, too; what they are not welcome to do is to own the medium that is money. There is no reason to assume that banks will lose out from this new technology. If they fail to adapt, they are simply bad businessmen whose business model relies on the government to protect their investments by hindering the rest of the economy. They are more than capable of offering savings and loans services on the blockchain. If Australia must go cashless, it is simply not a good idea to place the entirety of a nation’s money circulation in the hands of four private companies. Money can be transacted through this medium, and most likely will be majorly done through this medium, yet a non-private medium must exist as an alternative to replicate the free movement of money as it was done through cash.

This work is an edited excerpt from my book We Will Save Australia: A Policy Handbook for the 21st Century, available on amazon now! If you want to read up on other great ideas like this, feel free to check it out: https://www.amazon.com/dp/B09B3DNFM3