No sane person can deny the many benefits of cryptocurrency compared to fiat, and certainly the government can’t deny them, either. The age of e-money seems to be taking off.

Although the government of Ecuador banned Bitcoin in July 2014, for example, it rolled out its own e-currency, an “electronic money system” (SDE in Spanish), in December. Among the reasons cited for doing so, one is how much cheaper it is to renew the country’s deteriorating notes, on which Ecuador spends more than US$3 million yearly.

On another note (pun intended), German economist Peter Bofinger, has argued in favor of transitioning to a cashless society in order to combat tax evasion and drug trafficking. However, according to many German redditors, Germany is a cash-intensive country, which might be an indicator that the transition won’t happen fast, or even at all.

Not far from Germany, Denmark’s Central Bank (Nationalbanken) announced that it would stop printing fiat. They claim this will reduce costs for minting and combat crimes such as money laundering and black-market exchanges.

Sweden is already closer to a cashless utopia, deployed not by the government but by private companies. Currently, 4 out of 5 purchases take place with electronic means. On the whole this has meant:

  • Reduced crime rates, since there is no way robbers can take what is not theirs, whether it is money from a pedestrian, a bus or even a bank
  • Less money management costs, since there is no fiat to be transported and safely. escorted
  • Less privacy, since the electronic payment companies are fully aware of their clients’ appetites
  • Increased reliance on technology, which makes people resort to other means of doing transactions when the system’s offline

Considering other aspects, there has been a rise in fraud in the last decades in Sweden, which might or might not be related to electronic payment measures; correlation does not imply causation.

Cryptocurrencies can provide the same benefits as private companies’ electronic payment offers, with even less drawbacks, namely increased privacy and security. Compared to traditional electronic payments, cryptos are pseudonymous. This fact alone increases their privacy but the ownership can be deciphered by a third-party with the means to do so.

The good thing is that methods such as CoinJoin, which mix several transactions in one; or CoinSwap, that performs a complex operation involving 2 escrow transactions resulting in a somewhat trustless mixer, increase the security layer on top the blockchain.

These methods, in addition to the many more that are sure to come, can prevent against privacy attacks. Systems can be built on top of cryptos to improve its security.

Another less mentioned benefit is that cryptos can not be forged; the counterfeit money industry would disappear overnight.

A Totalitarian State’s Dream

It is not far-fetched to think that a totalitarian state would LOVE its own cryptocurrency. Think about it for a second: Cryptos do not necessarily need to be open source and decentralized. The evil empire could just enforce their own OppressionCoin, closed-source and despotic.

Let’s become a tyrant for a minute and marvel at some of the wonders of cryptocurrency to tie the people up with blockchains:

Money is able to be confiscated with a single click. No middle-men, no door knocking, no unnecessary expenditures. Just plain money reallocation. If colored coins were in effect, this would translate to houses, lands, cars, etc.

No longer can anyone hide anything from them. Now your tyrant of choice has perfect one-to-one access to your patrimonial status. Not only that, every purchase you ever make gets recorded in the blockchains and tied to your state issued identity. Much like credit/debit cards in real life.

Infinite money cheats can be enforced. Something as wacky and simple as not charging the government’s officials wallets could be held in place. Why bother printing money on batches, when you can create it on demand?

Embezzlement magic can take place. It is really cheap to mint money in the chains, but what’s to stop the law from doing whatever it pleases with its currency? Barring inflation as a limiting factor, all sorts of cheating measures such as double spending could be enforced by the ruling party; they could even make you “lend” your money to them. It’s all in the database.

Slave tracking becomes easier than ever. Why limit yourself to tracking people’s money when you can track their position also? By enforcing every government issued wallet to provide GPS coordinates per transaction or per fixed amount of time, people’s positions would be democratized from the realm of telephone companies to the monopoly of the ruling party. Why limit this to position data? Why not biometrics? And the list continues…

Why not centralized? One might argue. But the thing is that not even a highly centralized entity as a totalitarian state would benefit from a centralized cryptocurrency. The good thing of decentralization is that it provides necessary resilience through redundancy. Every node is a backup. This is always a good feature, regardless of your morals.

Among these fictional—and let’s hope they remain so—possibilities, many others can be thought up, which fall outside the scope of this article, and are best left to future novelists. Certainly technology in itself has no moral qualities; it is the ones who wield it who make the difference. This claim also holds for good governments, although anarchists might disagree that such a thing exists.

A Transparent Government’s Aegis

While an excellent tool for corrupt rulers, cryptocurrency (and its tech) are also a great tool for transparency. For instance, let’s suppose the gov’t starts using a publicly accessible blockchain for their expenditure tracking. Citizens, government officials and everyone else would be able to track money movements in real time! Traceability can’t get any better.

This transparent government would not necessarily forgo the privacy of its citizens, and several official cryptocurrencies could be deployed while satisfying different degrees of privacy. The central bank could operate as one big exchange hoarding a significant amount of some of these coins, which would have no reason not to be open-source and community validated.

Due to the positive effects of traceability to fight crime, coins stolen could be just “turned off” with no benefits to the criminal, while restoring that set amount of value to the rightful owner - a feat unthinkable today. With so much control, many types of crime would be meaningless. Why steal or acquire money illegally when it can be deactivated by a third-party?

Also, it costs almost next to nothing to transfer value with Bitcoin. The overhead of transferring and creating money is really, really low. Bitcoin is deflationary by nature, but a government-backed cryptocurrency is not necessarily subject to this. There are cost-savings aspects being considered and that is why the governments in this article’s beginning examples are really motivated to do this. A penny saved is a penny earned.

Perhaps the most relevant and instant benefit of cryptocurrency is the fact that it is an excellent solution to keep a registry immune to forgery. This can be used for many things apart from financial transactions, and legal documents are one. Currently, the startup Factom is doing this for land municipal registry databases in Kosovo and land registry titles in Honduras. The same could be done for any relevant state issued document.

Concluding Remarks

Regardless if a government is evil or not, all the possible benefits that can be derived from using cryptocurrency cannot be denied. It is only a matter of time until the relevant authorities thoroughly research and understand the topic well enough to roll out their own cryptos. How will current cryptos adapt to that new environment is yet to be known, but blockchains have come to stay. The age of electronic money is taking off.