Why Central Banks Will Fail at Digital Currency

Azteco owner Akin Fernandez explains why he believes a recent presentation at the US Federal Reserve did not properly represent the technology.

AccessTimeIconJun 13, 2016 at 3:32 p.m. UTC
Updated Feb 21, 2023 at 3:38 p.m. UTC
AccessTimeIconJun 13, 2016 at 3:32 p.m. UTCUpdated Feb 21, 2023 at 3:38 p.m. UTC
AccessTimeIconJun 13, 2016 at 3:32 p.m. UTCUpdated Feb 21, 2023 at 3:38 p.m. UTC

Akin Fernandez is the owner of bitcoin voucher service Azteco and an active technology blogger going under the nickname 'Beautyon'. 

In this opinion piece, Fernandez offers a critique of a presentation given last week at the US Federal Reserve to an audience of 90 central bankers, and explains why he believes the event didn't properly represent the technology.

game over
game over

Around 100 central bankers and regulators from around the world came to the Federal Reserve (the organization that inadvertently caused the creation of bitcoin) last week in Washington, DC, for an event titled "Finance in Flux: The Technological Transformation of the Financial Sector".

Jointly hosted by the IMF and World Bank (two organizations participating in the global fiat money Ponzi scheme), the event shows bitcoin is no longer regarded with any doubt by people at the top of democracy. Everyone who was saying that it works completely as described is now 100% vindicated, and all the people who said it did not work are humiliated.

What these bank men are doing is reacting to this clear and present threat to their role as monetary intermediaries. Blockchain startup Chain wants to be the vendor of choice for the software providing the middleman services to these central banks, and CEO Adam Ludwin made a sales pitch at the event without explicitly asking: "Who is going to write this software for you?"

As I have said before, you cannot have blockchain without bitcoin, and this article by professor Saifedean Ammous, published in the prestigious American Banker, expounds this fact nicely.

Men who try and separate blockchain from bitcoin are inevitably software vendors desperately trying to sell their services, trying to separate the inseparable because they can’t come up with business models where they interact directly with bitcoin. They also tend to be statists with a fervent belief in the absolute authority of government and implicit legitimacy of the money it mandates everyone accept in payment.

These people have a problem explaining this software plainly, and sometimes they just make things up. Talking about "blockchain architectures" could actually be a codeword for "MySQL". Everything that these vendors offer can be done in a MySQL database centrally controlled and secured with GPG. I have described how this would work in a previous essay.

What these vendors are leveraging is computer illiteracy. It's a safe bet that none of the attendees listening to this talk understood a single software concept that was presented to them; they were there merely to represent their organizations.

Against the state, not for the state

The perspective Ludwin gives in his talk is misleading and troubling.

The true background story of bitcoin is a deep dissatisfaction with the fiat currency system that steals money from the poor, fuels war and destroys economies. It is the state and its fraudulent money that was the sole driving force behind the creation of bitcoin, and a search for a solution to the double-spending problem had been ongoing for more than 20 years before Lehman Brothers collapsed; the idea that bitcoin’s creation had anything to do with Lehman Brothers is goldfish memory in full effect.

Men who understand what money is fully expected collapses like Lehman Brothers, and the inevitable hyperinflation event that is coming to the US dollar.

Economists from the Austrian School successfully predicted the housing collapse also:

These are the true origins of bitcoin and everyone knows it. Bitcoin is a solution to the problem of the state having absolute control over the form and supply of money and the regulation of banks. That is why it is so powerful; it solves two difficult problems at once, and offers an unimaginable number of secondary uses that are tangential to the money use of bitcoin.

The Federal Reserve "stimulus" programmes, secret bailouts and money creation that have destroyed the value of the US dollar are well understood by anyone familiar with the Austrian theory of money and even socialists understand that the Federal Reserve is acting against the interests of anyone that is forced to use its money:

This is the true perspective behind bitcoin, not some sugar-coated false history of why Satoshi Nakamoto created it.

Bitcoin was created by anarchists who understand Austrian monetary theory, which limits money supply deliberately because it understands that in order for money to be sound, its supply must be fixed.

Proponents of this system understand that money should not be in the control of the state, but should be solely a product or service produced by the market. These facts are missing from Ludwin's talk, and the omission is deliberate. He knows how to speak to these bankers, and he knows their severe limitations when it comes to computers and software.

They work primarily on instinct and emotion in this area; any mention of the Austrian school, the reasons for the limited money supply, Anarchism or the anti-Fed animus built into bitcoin would cause these people to reject the idea he is selling, no matter what it is worth or its capabilities.

Role reversal

This is why, for many years, people simply did not accept that bitcoin did what its proponents claimed it could do, despite the software being available and examinable.

These people don’t understand anything connected with the computer world; they are leaves in the wind, where the wind is coming from a hand-held blower, wielded by software vendors.

Evidence that Ludwin has dumbed down his talk to suit his audience’s capacity is found in his use of the phrase, "In an obscure corner of the Internet". There are no "obscure corners of the Internet".

All parts of it are equally accessible to everyone. This is the sort of descriptive language that is needed to explain bitcoin, but which simultaneously plagues it, because many of the men trying to contextualize it don’t have the eloquence to make a good job of clarifying and simplifying its true nature.

Its also interesting that the widely cited “Bitcoin white paper” now universally held in the highest regard (even by people who know nothing about software, maths or economics) is entitled “Bitcoin: A Peer-to-Peer Electronic Cash System”, but these crony capitalists choose to deliberately focus only on the means by which a P2P electronic cash system was achieved, not the idea of a new way of managing and accounting for tokens.

The Federal Reserve and central bankers believe that only they have the right to issue money. Bitcoin, explicitly created to issue a new form of money, cannot have its name or true purpose associated with blockchain vendors, because the threat to them is implicit in bitcoin’s genesis and operation. More on this later.

Ludwin says that the bitcoin network has proven to be robust. Bitcoin has always been robust, was never a Ponzi scheme, fraud, about to collapse or any of the other lies spread about it by computer illiterates.

Why exactly Ludwin asserts that it is resilient now, and why anyone should believe him over anyone else is not fleshed out in his talk. There is no more reason to think that bitcoin does what its creators claim it can do now than at any time during the vicious, brainless, evidence-less attacks on it by academics, journalists, economists and other assorted idiots.

This controversy that Ludwin mentions was a tissue of lies from the beginning. Unfortunately, we must all deal with a world populated by men who cannot and who refuse to think, and this talk at the Federal Reserve and their inadvertent anointing of bitcoin will greatly strengthen the perception of bitcoin globally. This is the only thing we have to be thankful for from this meeting.

Now, no one will be able to lie about bitcoin in any serious publication. The same software that the blockchain-not-bitcoin vendors are trying to sell powers bitcoin. If the latter works, the former must work, and anyway, "The Federal Reserve said it works".

Power of open-source

On top of this new faith in bitcoin are the extensions and features that are being added by Bitcoin Core that increase its capabilities. It is impossible for any single government or corporation to out innovate an open-source software project with many developers working on the same system.

Linux is the living proof of this; no one can come close to the amount of genius being poured into Linux.

That is why it is everywhere, in billions of devices, and increasingly on desktop computers. Bitcoin domination, even as a universal financial backbone, is inevitable and there is nothing anyone can do to stop it.

Bitcoin did not create a new asset class. Bitcoin is money, in the same way that fiat cash is used as money, or metal buttons stamped in Birmingham in the late 1700s were money.

Institutions are buying software from hungry vendors because they do not want to be left out of the latest innovations. The vendors sell them snake-oil solutions to problems that they don’t have, and because they don’t have any understanding of computers, cryptography or economics, they buy these systems and pilot them so as to appear cutting edge.

As an example, there is no such thing as "digitizing existing asset classes".

Databases hold entries that are text. That is all that they do, and bitcoin is nothing more than a write-once, read-many database. What is happening now with the bitcoin-not-blockchain vendors is a direct mirror image of the intranet fad that happened in the 1990s

The computer illiterates of that era, were sold the idea of private networks based on a series of false assumptions and an inability to understand what they were working with. Vendors set up a compelling story, and sold them expensive bespoke systems.

The idea of an “Intranet” which sounds like “Internet” was an easy sell.

Much less sexy is “local network” which is exactly what these intranets are, and today they work on standard protocols, not bespoke systems. The blockchain-not-bitcoin people are creating the same worthless intermediary step to total Internet acceptance that the Intranet vendors did in the 1990s.

Threat of a FedCoin

Of course, they are free to do this, but because the function of money is what bitcoin is replacing, and because the Federal Reserve and the other central banks have the entire force of government behind them, this will not be like Intranet vs Internet and private protocols vs open protocols debate. If the central banks try and release their own cryptocurrency altcoin, they will anoint it and supercharge it with legal tender status.

That means that it will be illegal for anyone to refuse to accept their altcoin for settlement of debts.

Essentially, they will move their Ponzi scheme from one set of databases that they have exclusive access to, to another database they own where all market participants have direct access to the generated tokens. That is the only change that will happen; the fundamental and unethical nature of the money will remain unchanged. It will be imposed by force, and its supply will be managed by a secret process. It will be as unreliable as all fiat currency ever was. This is the very definition of lipstick on a pig.

All asset classes like shares, are already held in databases. What Ludwin is trying to sell in a "bait-and-switch" is a new form of database where he claims layers of trust are removed. The switch comes where layers of trust are reinserted because what he is selling is a “permissioned” database requiring trusted parties.

Omitted from his model is that in bitcoin, no one needs to be trusted; all bitcoin-not-blockchain vendors must break the trust model of bitcoin to re-assert the control that the Federal Reserve and NASDAQ (for example) have over who gets to control the money supply and who authorizes shares to move respectively. There is no place in the bitcoin world for the Federal Reserve; bitcoin was designed to destroy it.

This is the real reason these institutions are testing new networks.

Ludwin said that the blockchain is designed to issue and transfer bitcoins. This is true, but bitcoin can be used to transfer any good, tangible or intangible. How is this doable? Stocks and all other assets are serialized.

All stocks come with a serial number that is unique to the share. The same is true of bonds and even paper fiat money. It is trivial in software terms to attach a stock to a bitcoin transaction – instead of having a printed serial number, a bitcoin transaction can be assigned to the share.

The people behind 'coloured coins' have been working on precisely this way of representing and managing real-world assets.

Problematic presentation

In other words, this problem has already been solved, where you have all the now admitted resilience and reliability of bitcoin and the ability to “attach” real-world certificates of ownership to entries in the bitcoin database.

There is no need whatsoever to create a bespoke, private, illegitimate Federal altcoin, unless your aim is to sell software services.

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This diagram from Ludwin’s talk shown above makes no sense. The yellow circle represents the founding of bitcoin. It then splits into two parts, "bitcoin and altcoins", and "blockchain". The problem here is that there is no blockchain without bitcoin.

The downward fork from the "bitcoin innovation” bubble has an intermediary step called "create digital money by digitizing existing assets". This is hand-waving nonsense. The only thing that can be offered here is serializing assets against a database and nothing more.

Note also how the upper terminating bubble says "no network operators" which makes is seem like it's a dead end of sorts.

Of course, the exact opposite is true; the bubble actually contains everyone on Earth who has a computer; they can all access the bitcoin network as peers and use it as money without permission of "FIs or central banks". This is a very problematic diagram, whose effect is to mischaracterize the difference between the bitcoin network and the blockchain-without-bitcoin snake oil being offered.

The yellow circle in the previous diagram contains bitcoin as an innovation. The big idea of bitcoin is that it is money out of control of the Federal Reserve and the central banks. Its big idea is that the nature of money is not subject to twisted inhuman and destructive fantasies like Keynesianism.

The big idea of bitcoin is that money is forever fixed in its supply and that it can never be revoked or replaced with bad money.

Using music and movies as an analogy to bitcoin is helpful when talking about the disruptive effects of software, but in the case of bitcoin, the disruption is not in the manner that Ludwin and the Federal Reserve would like. Converting music and books into data has meant that no one ever need pay for music or books again, unless they choose to. The market structure of the music and movie industry has been transformed by force, and there is nothing that the state can do to stop people copying music and movies. This is an absolute, indisputable fact.

The losers in the music and movie industries are the companies that used to sell physical products to consumers that contained their intellectual property. Now that music and movies have been dematerialized, the losers are the music and movie businesses and the winners are the public.

The same will now happen with the dematerialization of money. The central banks and the state will be the losers, and the winners will be the public, as people move to private (in both senses) monies like bitcoin, completely cutting out the central bank’s fraudulent fiat currencies. There are only advantages to switching to bitcoin, and no downsides.

When everyone runs their own bank, with global access to send and receive money without permission, in any amount, you will never again see people complaining that a bank where they had an account has shut off their access to their own money.

'The Transformation' comes

All the artificial rules and restrictions of the central bank-licensed banking system evaporate in bitcoin.

Because it is frictionless and feels extremely satisfying and empowering compared to banking, bitcoin will transform the world at a rapid pace, and anyone using it will be able to move faster than other market players.

They will have a built-in advantage when they use bitcoin; word of this will spread and The Transformation will be unstoppable like nuclear fission.

Bitcoin is not a simple transition to a new medium. It is a paradigm shift. Every assumption about what money is, how it is stored, who should control its production, how it is transmitted and managed is turned on its head in bitcoin. This is not a simple matter of moving from Oracle to MySQL; this is the equivalent of computing without computers.

Its something that is very hard to accept for people inured to the idea that the state should be the sole provider of money; bitcoin is money without the state. It is banking without banks. Its wire transfer without wire transfer services. It destroys everything that the 100 people at this meeting rely upon and take for granted. It ends their world forever.

Bitcoin is not a bearer instrument. It is not like a silver certificate dollar from the time before the dollar became entirely illegitimate.

A bearer instrument is, as this $5 note is, a certificate redeemable by someone for something of value. In the past, everyone knew that the paper money was not valuable in itself; it was only a placeholder for real money held by the bank, which was either gold or silver. Everyone knew that if they wanted to, they could redeem the paper for actual money and so they were willing to conditionally and temporarily accept the paper tokens in lieu of real money for their daily transactions.

That is the true nature of a bearer instrument; it is a document or note backed with a legally binding promise and guarantee from an institution, redeemable on demand to whoever has the note in their hand – the "bearer".

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Bearing this in mind you can see immediately why bitcoin is not a bearer instrument, quite apart from the technical reality of bitcoin that it never moves from one place to another, and is never borne by anyone. It is not backed by any institution, is not redeemable for anything and has no promise, guarantee or contract of any kind from anyone anywhere on Earth attached to it.

And this is the incredible breakthrough of bitcoin.

Not only has the double-spending problem been solved, but the problem of relying on a trusted issuer has been eliminated. Now, everyone in the market is the entity that promises to return goods of any kind in return for bitcoin. Instead of a money backed by gold and silver, bitcoin is backed by all the goods on Earth.

Money is the market

Anyone with anything to sell for bitcoin is acting like a guarantor of the value of bitcoin. Instead of a central bank guaranteeing to give you silver for your certificate, each market participant guarantees to deliver you goods of any kind for bitcoin, on demand.

The idea of central bank silver-backed money has been turned on its head, disintermediated and decentralized.

Now, the source of the value of fiat currency, in this case bitcoin, is distributed and pushed into the market itself. Now money is not separate from the market, it is part of the market at a purchase by purchase level. It is so fine-grained that it is hard to grasp its size and impossible to measure its complexity.

All goods and money are one in the new economy; "The Transformation". In the light of this, the idea that anyone should rely on a state issuer of an altcoin for money is absurd.

A key principle of a bearer instrument is that you do not have to rely on anyone to spend it. You can steal a $20 note, wave it around and claim that you are the owner, but that would be a lie.

All you are doing by waving that stolen note is showing that you posses it, not that you are its owner. If you hand that stolen note to someone else, you are trafficking in stolen goods, and the recipient is no more the legitimate owner of it than you the thief are.

Having control of a thing does not mean you are the owner of a thing. Subtle matters of rights are absent from the thinking of anyone who believes that the Federal Reserve and its funny money are something to look up to and preserve.

During his talk, Ludwin sent some bitcoin to the Wikimedia Foundation, whereupon he claimed that, "it is as if I handed them cash". Of course, this is not at all true. What really happened is that nothing moved at all. He signed a transaction on the bitcoin database, assigning a portion of existing bitcoin to the Wikimedia Foundation’s private address, using their public key to lock the data to them.

He did not "transfer" anything, and sending bitcoin is nothing like handing over cash. Unfortunately, when you are trying to describe what bitcoin is to men who think a computer’s CPU is the fan, you are very restricted in the analogies you can use.

Money over IP

Bitcoin is not money. Its function and use should not be subject to any law that covers money, and it is no different to any other software that is in use today. Bitcoin is a digital messaging system. It is a messaging system that relies on cryptography rather than trusted intermediaries. It is a messaging system, and nothing more.

It can be used to send and store any sort of message, but it is best at simulating money. That is the truth.

The goal of the blockchain industry is to sell its software to computer illiterates. Its goal is not greater efficiency, transparency or integrity; all of those things are gained from bitcoin, and are negated by running private "permissioned" databases.

In his analogy, Ludwin likens the blockchain industry to having a dollar to make a settlement, but this analogy is flawed; there is only one issuer of dollars, and what blockchain industry vendors are offering are not a single trusted, best, infallible authority as the US was when it issued its gold certificates, but counterfeit bitcoin.

Money over IP is a neat way of describing bitcoin, but the TCP/IP and all other protocols are global and standardized. You do not have separate Internet network protocols for each nation on Earth; they are all on the same protocol by default. That is why they are interoperable.

FedCoin interacting with EUCoin interacting with RubleCoin interacting with IranCoin, where each one has a separate incompatible blockchain, each with a different money supply and policy is a non-interoperable model. Bitcoin, if it is the TCP/IP of money must be a global standard, with a set of rules that are unbreakable.

If you do not want to participate in bitcoin (the Internet) then you are free to decline the offer, but you cannot impose a broken standard on the entire globe. This is what Ludwin is advocating.

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Understanding bitcoin is hard. Not only do you need to throw away years of training but you need to have an understanding of computers and the nature of data. Not many people have these attributes.

Ludwin claims that bitcoin works because you can transfer a "digital object" without copying it. This is false. Bitcoin doesn't have anything to do with objects. It works by digital signatures. Saying "it works by digital signatures" by itself cannot convey what a digital signature is, but that doesn't matter right now. What matters is that Ludwin does not know what a digital signature is, and if he does, he failed to explain it to the central bankers at this meeting.

You can call bitcoin “digital bearer instruments”, but someone else could call them another thing. Why should your definition be the default that everyone is forced to live by and adhere to by law? And if you convince a great number of people that your description is appropriate, why once again, should anyone be forced to operate by it?

Imperfect definitions

No single man or group of men has the right to define what software is or the sole legitimate purpose of it. These people do not have the right to fence in software and compel everyone to operate by their rules.

No one needs perfect analogies to describe bitcoin; the use cases and products come from software engineers and entrepreneurs only and not from bureaucrats, journalists and busybodies.

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Credit where credit is due; Adam’s description here is perfect:

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But then he goes on to claim that “we can put many different types of assets on blockchain networks," which is not true.

Bitcoin only stores signatures, and nothing else. Nothing can be put on to it, and there can be no “blockchain networks” just as there can’t be more than one Internet. There can only be one bitcoin, and you do not control it. Bitcoin tagged to shares can be traded without counterparties, but that cuts out the state and its mechanisms.

A first big attempt at doing it is The DAO, and this idea has been floating around for some time. All the best models see the state and actors like Ludwin as a threat, because they are courting the State to make it harder for people to enter the market. They want to close off software developer’s access to the people. It is unethical and evil, and they cannot ever win. How do financial assets get on the network? They don’t.

Bitcoin exists only to fulfill its purpose; to show which keyholder controls which database entries, and that is all. It does nothing else, and that is sufficient for it to act as an intermediary in all transactions for goods and services.

You do not need to “put an asset on the network”. All you need bitcoin for is a means of accounting for something. Once again, this idea of "putting assets on the network" is an example of computer illiterates trying to find a use case for something designed to a job that they do not believe needs to be done. None of these people believe that there was a need for bitcoin before bitcoin existed; they were all happy with the Federal Reserve and its fiat currency, inflating money supply and all the ills that were borne of it.

They had no interest in cryptography, privacy and especially financial privacy, which they believed was inherently criminal and they still do.

Plato's cave

Now a tool emerges that solves problems they did not even know they had, and they cannot accept that they have been wrong about something central to their existence and identity their entire lives: money.

Rather than accept that their eyes have been opened and they are now free to emerge from Plato’s cave, they stamp their feet and like a spoiled child say NO!

"We are going to re-purpose this tech for something else; we are going to ensure the continued existence of this dark cave by adapting bitcoin to the Federal Reserve, where we feel safe!"

Unfortunately for them, staying in the cave is not an option. Millions of people are going to escape, and because bitcoin will absorb all the money and assets on Earth, they will not be able to eat falafel without touching bitcoin in some way. Today, you cannot buy or sell oil in anything other than US dollars. Iraq was destroyed because it tried to denominate its oil in a currency other than the dollar.

In the future, all commodities will be denominated in bitcoin. No one will accept any fiat currency for real-world goods, because the the emperor will be stripped naked; everyone will understand that fiat currency is fraudulent and insecure (in more ways than one) and the only acceptable money for international trade will be bitcoin.

A FedCoin will not be accepted globally for several reasons. First, it will be technically inferior from a monetary theory perspective and a privacy perspective. Second it will have the taint of the US government on it, making it unpalatable to many countries on Earth.

Only bitcoin, the neutral, technically superior, apolitical, global cryptocurrency will be universally acceptable. It is policy neutral, ethical, untainted, reliable, fungible and the most secure. It cannot be revoked, changed, restricted and very soon, spied on. Bitcoin respects your human rights; this is something that the Federal Reserve and the central banks can never offer, because they are wedded to Keynes, the childless, "the future doesn't matter" wealth destroyer and his demonstrably false economic theory.

Internet of Things

The “Internet of Things” fad is fascinating, but it is not needed to make bitcoin more exiting. What is exiting about bitcoin is the complete transformation of society from fiat currency to irrevocable sound money.

Bitcoin is not needed to open your car door, or do some other Heath Robinson function. Bitcoin is transformative enough as a single use tool. Its effects will be unprecedented and global. The petty, unimaginative, low horizon scenarios where bitcoin is stuffed into 20th century business models are quite frankly, boring.

Anyone is free to develop whatever software they like, of course, but this FedCoin proposal is unethical because it will have the force of law behind it in the form of Legal Tender laws.

In a properly operating market, these ideas would die because they are bereft of merit.

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In a world where there is a monopoly of force in the market, bad ideas can be made to appear to succeed, which is absolutely unnatural; as unnatural as the idea of "issuing dollars onto the network".

This statement betrays a fundamental misunderstanding, and if not misunderstanding a wholesale rejection of the raison d’être of bitcoin.

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The diagram above is completely absurd. The word “trust” appears above the central bank, which is in fact the very fount of distrust, deception and theft. If the central bank is the seed of this diagram, everything that flows from it is fundamentally flawed and tainted.

This is precisely the present fiat currency system, only transposed to bitcoin. It is exactly the trusted central bank element of this diagram that bitcoin was designed to exterminate. The funny money, worthless, backed by nothing, multi-colour Jefferson note is now a symbol of fraud, not trust, and this shocking realization is spreading globally.

Even the repulsive “IS” knows that the US dollar is the enemy of all living men and they are doing something about it.

The fiat dollar coming from this trust box, of course, will not be a limited supply currency, but a fraudulent digital currency guided by Keynesianism, whose parameters will be secret and whose operation will also be hidden on private servers.

This is an absolute requirement by government, as seen in the video above of Bernanke being grilled by socialist Bernie Sanders. The Federal Reserve and other central banks use secrecy as a governance and policy tool. The radical transparency of bitcoin is anathema to them, and they will never accept that everyone everywhere on Earth will be able to audit them by downloading and querying their private blockchain.

Can you imagine a tool like OXT showing all the Federal Reserve’s manoeuvres in real time? It even makes me shudder.

Blockchain pipe dreams

Central bank digital currencies are a non starter.

First of all, in order to launch one, it would de facto mean invalidating all existing digital balances and paper dollars on Earth. You could not have two systems, a digital altcoin dollar and the old Oracle, paper systems running in parallel. Additionally, it would be like the Federal Reserve or central bank offering consumer banking services direct to the public.

Why would anyone need a Chase account if they can get their FedCoin and its iPhone wallet directly from the Federal Reserve? Furthermore. there would be no way to stop people developing software to send and receive these coins anywhere in the world, and of course, to secure the network, they would have to employ the hash power of people outside the government, which would limit the amount of control they had.

The bitcoin network is the most secure because it is big and mined by different self-interested parties. Any network that is small can be attacked; you can’t expose your digital tokens to the public and also maintain complete control. You either have an intranet where its trusted nodes and users, or you have an Internet where trust is moved from the center to the peers.

There is no halfway measure in this; it's one or the other.

Central bank digital currencies are not "a better model" they are a disaster. Just ask the Canadian Royal Bank about their doomed Mint Chip project.

Based on many of the false assumptions and hubris we see in the central bank’s approach to bitcoin, Mint Chip was doomed from the beginning because it did not take into account the reality of what money should be. They worked from an incorrect set of assumptions, and built a product to a specification that was entirely in error. Bitcoin on the other hand, was built from entirely correct assumptions and observations about how central bank issued fiat currencies work.

That is why it is so powerful; it is fundamentally correct.

That anyone can claim that a FedCoin is good because it is "backed by the full faith and credit of the US government", shows they either know nothing about the true nature of government fiat currency or they are being sarcastic.

Full faith and credit is meaningless. The destruction of the US dollar is proof of this:

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This same organization, that oversaw the obliteration of the value of the US dollar, is now, for no reason, going to be trusted with the creation of an altcoin that is to replace bitcoin? Surely this is a joke.

All the elements proposed to make this FedCoin digital currency a reality were invented by the free market. From the idea of wallets on phones onward, none of it has come from the state. That everyone should now just give up their liberty to accept a FedCoin is a risible idea.

Neutral economic ground

There is no way this is going to happen, and if it is mandated in the USA, it will be GSM vs CDMA all over again, and the USA will be forced to capitulate. No one on Earth will accept the domination of a US controlled altcoin as the global reserve currency.

Only a neutral, global, ethical, unmalleable, transparent and stateless digital currency, bitcoin, will be acceptable to everyone as the keystone money of the Earth. What the Esperanto people failed to do with language, bitcoin will succeed with money! What does the future hold for central bankers and regulators? The answer to this is nothing.

This is the explicit purpose of bitcoin: to eradicate the central banks and put the money function out of reach of regulators permanently. People are asking the wrong questions about bitcoin.

One of these wrong questions is “What role should we (the state) play in the emerging digital asset economy?” The answer is you have no role to play.

You are now nothing more than peers on the network at best. You will only be tolerated if you provide a useful service. Any anti-bitcoin action you take will be rejected by the network’s users.

Your only option now is to capitulate gracefully and set up a mining farm. Perhaps you could set one up in Fort Knox, which would be an appropriate site. Or perhaps you could repurpose your redundant, obsolete and repugnant Internet espionage centre in Utah.

Who knows? Who cares? You people are finished as players in the money business and that is an entirely good and exiting prospect.

Five imaginary roles for pre-transformation actors:

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You can initiate and operate a network, but it will be worthless because it is not bitcoin. You can issue assets onto it, control who has access to it, write your own rules, create products and services that run on your network, but it will never be bitcoin, will never have the commercial advantages or global network effects of bitcoin, and there will always be a better competitor on the bitcoin network that offers products without hassle or intrusions into user privacy.

The DAO is a good example of this. No one knows who is investing in it and it has raised $180 million in "ether" coins. There is no requirement to identify yourself to The DAO; the network takes care of identity, which is folded into who controls the private keys.

Everyone who can think wants a system like this, and the more systems like The DAO succeed, the more popular they will become.

A FedCoin cannot ever keep up with open-source free market innovations and products. They can barely understand the first generation that now exists. They have no hope of competing, not only because they have a technology deficit, but because they are competing against the network – the entire global network.

Blockchain pipe dreams

Bitcoin provides protections for privacy. You may have a tool to measure the system, but you will be powerless to interfere in its operation.

Compliance is set to become a thing of the past. You will not be able to ever again answer questions about collateral ownership and anything else to do with what people are doing on the market. Central bank digital currency will never replace bitcoin, it will never power international settlement, and the system will operate with no counterparties.

Policy makers are going to be made redundant. Their means for influencing liquidity will be permanently disallowed and banished. This is the true face of the future staring central bankers in the face; absolute annihilation and obliteration.

Imaginary “blockchain networks” will not lead to a safer and better payments system; that system already exists, and has a seven-year service record of uninterrupted and perfect performance: bitcoin. Central bank altcoin currencies will not be the foundation of a global system; they will be exposed as fraudulent in the white light, white heat of bitcoin.

The rate of innovation in bitcoin will outpace any central bank offering, and the vendors relying on Bitcoin Core’s software who may be statists cannot control the new features being added to it. Bitcoin is being developed for the people of the world, not the benefit of central banks.

Public sector leadership

Governments have played no role at all as inventors or funders at the infrastructure stage of a bitcoin. It is a perfect Black Swan emerging from Pandora’s Box.

Bitcoin exists at a time where decentralization and disintermediation are the most powerful forces on the market.

Just as telephony, photography and news dissemination have changed forever, money is last piece of the puzzle because it was the hardest to solve. It has now been done, and there is no reason why government should be involved in it, just as they were not involved in the switch from nitrocellulose film made by Kodak to digital cameras.

Bitcoin is no different to digital photos, it's just another data service, and the state has no special privilege or right to control it.

Your offer of a FedCoin will be rejected by the market. There is no way you will be able to stop bitcoin. In the end, bitcoin will dominate. You will offer yourselves as consultants, guardians, guarantors and arbitrators.

The answer to all of your offers will be: no thank you.

Game over image via Shutterstock

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