The latest frenzy is only making the case stronger for a stable, centralized, state-controlled rival. Enter Digital Cash.
The wild gyrations of bitcoin in 2021 have ensured one thing: the future of money will be electronic, but it will not be remotely cyberpunk dreamlike. The power of the people will bow before the power of the sovereign.
Digital cash issued by central banks: The frenzy and panic that decentralized cryptocurrencies are excited to think are increasing the attractiveness of their upcoming rivals. These tokens will be staid, centralized and state-controlled. That is exactly what users want in an Internet of Things world where machines need to settle claims with each other all the time, immediately, but without contributing to global warming.
Government electronic coins will be a new type of central bank liability with physical cash, although for investors betting on the future value of the dollar, yen or euro, they will not be a derivative asset class.
This has obvious advantages. To avoid becoming a lightning rod for fresh speculation, it means that a global economy will make far less heavy demands on energy resources than cryptocurrencies operated by FedCoin, Digital Euros and China’s e-CNY. In the absence of a reliable intermediary, the “mining,” or proof-of-work protocol that protects the blockchain from double-spending attacks, requires power-ghazling hardware. Between bitcoin and athorum, the electricity consumed can illuminate 16 million American homes.
This is not the case for distributed ledger accounts that will verify the transfer of official coins. These ledger accounts will be held by a select group of intermediaries only with the permission of the central bank. Instead of being in the race to solve puzzles faster than malicious actors, as we see with decentralized cryptocurrency, nodes in the network can lock their own funds to return legitimate transactions.
This approach, known as a proof wager, would require a fraction of the energy-proof work needed. The author wants to switch. Cryptocurrency will replace ether hardware and power as will be the necessary investment to secure the network. Verifiers will earn fees by locking at least 32 Ethers. (This is a $ 72,000 commitment I am writing.) If they misbehave, go offline, or fail to do their job, processors may lose their bail.