Bitcoin entrepreneur Brock Pierce has announced the launch of 'realcoin', a new cryptocurrency backed by the US dollar.
Realcoin aims to bring the advantages of the bitcoin protocol to the dollar, meaning it can utilise the bitcoin network for low-cost transactions without a third party, but it is backed on a one-to-one basis by the company's dollar reserves.
The approach is ultimately aimed to eliminate volatility, but will help prevent confusion over divisions of higher-value coins like bitcoin too – as one dollar will be worth one realcoin, rather than 0.001608 BTC at the current price.
This is not the first altcoin to use this particular name. However, the new cryptocurrency announced by Pierce, along with ad-industry entrepreneur Reeve Collins and Mastercoin's Craig Sellars, is unrelated to previous 'realcoin' projects.
It is, however, based on the same concept as Coinaaa (AAA), a cryptocurrency backed by Norway's national currency, the krone (NOK).
'Digitizing the dollar'
Realcoin uses the bitcoin protocol and can be described as a 'Bitcoin 2.0' venture, that is, one that is built on top of the existing bitcoin infrastructure.
In chat with the Wall Street Journal, Collins explained the confusion that often arises over bitcoin's different aspects:
"Unfortunately, there has been confusion for people between the currency called bitcoin and the technology called bitcoin, when they are distinctly different things."
Realcoin, he said, is basically "digitizing the dollar" by giving it access to the bitcoin block chain.
How it works
With each coin backed by USD, realcoin will have an additional layer on top of the block chain to make it work. This is made possible by the Mastercoin protocol, which is used to infuse each realcoin with the necessary digital signature.
Realcoin will maintain a real-time record of all USD reserves that will be held in "conservative investments" and the full record will be authenticated by the block chain.
The company explains:
"Realcoin will be completely transparent, safe, secure and insured. Every dollar that is held in our reserve will be represented by one coin in circulation and can be redeemed at any time."
The one-to-one reserve will be fully auditable, too, according to realcoin.
Collins says the company has already signed a deal with a major banking partner and plans is to make similar deals with other banks in order to utilise the ATM infrastructure to buy, trade or redeem realcoins anywhere in the world.
Realcoin says it is already trying to obtain a money transmitter licence in the US.
Eventually, the company also aims to introduce similar cryptocurrencies, backed by the euro and yen, to open up the advantages of the bitcoin protocol to users of other currencies.