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The story of FedCoin: How the government can turn the idea of cryptocurrency

A well-known blogger and UI designer Tony AUB , shared his opinions onwhy cryptocurrency can lead to the worst dictatorship in the history of mankind.

The more I think about cryptocurrency, the more worried about the future.

On the one hand, cryptocurrencies seem like a libertarian dream. Technology allows you to send money (or other media assets) via the Internet without the involvement of third parties. Digital currency to significantly expand our capabilities.

Bitcoin (Bitcoin) and other cryptocurrencies are open source, censorship-resistant, do not require special permits and are not bound by borders and obey no one. They question the existence of banks and lead us to a world of absolute self-government.

On the other hand, using cryptocurrency government can have frightening control over the population — more than ever in history.

How is that possible? Consider FedCoin — the idea of a centralized cryptocurrency developed by the government and by the Fed designed to replace conventional money.

Cryptocurrency = programmable money

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Since the advent of bitcoin’s most ambitious achievement in the world of cryptocurrency is the emergence of a full Turing projects such as Ethereum. These projects are similar to bitcoin, but have one distinctive feature: they are able to perform any calculations.

Since these cryptocurrencies can handle computer code, you can create and distribute applications built on them. These applications are called smart contracts. Their appearance revolutionized the financial industry, because there was the ability to program transactions.

For governments, this possibility is extremely attractive. Why?

1. Automation of taxes

Imagine a world where cryptocurrency called FedCoin completely replaced dollars. Then the us government will be able to translate the tax laws into electronic format.

Taxes will automatically be withheld each receipt or expenditure of money. Do not need to hire an accountant to prepare returns. Everything will happen in real time using smart contracts. Cryptocurrency will make the accounting profession is the same junk which unmanned vehicles would make the profession of the driver.

Think about the savings of time and resources. Every year us citizens spend about 6.1 billion man-hours for the calculation and payment of taxes. Because of this, the economy loses about 233 billion. Automation of taxes will save significant amounts of time and money as taxpayers and the government.

2. Distribution automation Finance

In addition to taxes, FedCoin will also allow you to automate the distribution of money. For example, a politician promises to increase spending on education by 10%. Instead of empty words it can include the increase in the blockchain. Then every time the government gets taxes, the additional funds will be transferred to the Ministry of education. FedCoin eliminates the problem of faith in politicians — all will be reflected in the code.

The same applies to other methods of distributing money. It is necessary to conduct financial incentives? No longer need to send checks through the mail and take care of their safety. The whole process can be implemented using a single line of code.

3. Transparent government

История о FedCoin: Как власти могут перевернуть идею криптовалют Shutterstock.com

FedCoin will also increase government transparency. One of the biggest misconceptions is the idea of privacy of cryptocurrency transactions. In fact they are not (with the exception of specially designed anonymous cryptocurrency). All the way around. At any time from the site bitcoin.org you can download the blockchain with all the transactions ever created in the network. By definition, each transaction with bitcoins is public.

If FedCoin will be arranged on a similar principle any citizen will be able to download the blockchain, find the addresses of the government and see exactly how politicians spend public money.

Given that over the last 20 years, the U.S. government lost more than 21 trillion dollars (Yes, trillion — almost as much is all government debt), increasing transparency would be highly desirable.

Bankruptcy by cryptocurrency

Cryptocurrency can improve the efficiency and transparency of public finances, but there’s one problem. Imagine the situation:

A man took a Bank loan of 1 million dollars and bought bitcoins. He then placed them in a secret personal wallet, destroyed all traces of the private key except the mnemonic phrase of 12 words that you remember. Now the only way to the money is through his mind.

He returned to the Bank declares bankruptcy and refuses to repay the debt. Under normal conditions, the Bank, the court and the government will make every effort to find and arrest any assets belonging to the fraudster. But now all the money is encrypted in the blockchain, and that million dollars will remain forever with him.

История о FedCoin: Как власти могут перевернуть идею криптовалют Shutterstock.com

This Scam is possible to do already today (it is surprising that so far never happened). Of course, the attacker would have to permanently leave the country. Otherwise, it likely would have been accused of fraud and put in jail.

The point of this example is that cryptocurrencies are still outside of the law. For the authorities this is a serious problem. If everyone starts to declare bankruptcy on loans or stop paying taxes, the system could collapse. This government will not allow.

How can you get all the benefits of programmable money and not lose control? The solution is obvious:

  • The authorities create a FedCoin and replace them with a national currency;
  • In the code they are leaving a loophole. It can help to block or withdraw funds;
  • In all likelihood, the authorities will block bitcoin, ether and other cryptocurrencies, you can’t control. In addition, under the ban will be cash — they are also hard to control (which is used by criminals).

In the world FedCoin authorities will need to make withdrawals through the courts and banks. They can do this at a keystroke. If that doesn’t scare you, ask yourself the following question:

What if FedCoin was Hitler?

Imagine that in 1943 Hitler had absolute control over all money to Germany. What if willed he could freeze the assets of half the population? The story probably would have developed a completely different scenario.

Or take the Chinese system of social credit — new program in which every resident of China is assigned a rating (like a credit rating). It varies from 350 to 950 and does not depend on the financial condition and values each person as a citizen.

In the framework of this programme evaluation is reduced under certain violations. This may be crossing the street in the wrong place, delayed payments on the loan, a criminal offense or just a friendship with a person with a low rating. When the reduced rating of the citizen, falls and quality of life.

In China, a low rating means limited access to credit, higher interest rates and taxes (in some cases even a slower Internet access). If the rating falls below a certain level, citizens will not be able to send their children to private school or to buy tickets for the train or plane. The meaning of the program is to make life unbearable for individuals who do not want to obey the government.

This may seem a dystopian nightmare, but the program is already running. The authorities plan to extend it to the whole country by 2020. More surprising is that the majority of participants it seems like the program offers benefits to those who behave “well”.

It is easy to imagine what will be the “social credit” in a country with a corrupt government. When the program is fully operational, nothing will prevent the authorities to reduce the rating for, say, unwanted protests or support for the “inconvenient” candidates. Coupled with digital money social credit becomes the absolute system pressure and control.

Yet to create such a system, China lacks its own national cryptocurrency. After its appearance the rules of the program of social credit could be made directly on the blockchain.

It is not surprising that in 2016 China is actively developing its own analogue of FedCoin. In parallel, the authorities increase the pressure on other cryptocurrencies, prohibit ICO, mining and exchange trading. You can bet that China will launch the first state is a cryptocurrency and the system of social credit will become its integral part.

The turning point

История о FedCoin: Как власти могут перевернуть идею криптовалют AP Photo/Aijaz Rahi

The transition to digital money is inevitable. It will happen in 10 or 100 years, but at some point of time all the money in the world will become digital. Their advantages are obvious to all.

The problem is that as the transition to digital form will grow and the government regulatory agencies. Currently, non-cash payments allow governments and banks to keep track of any transactions. They can decide who gets and spends money, and who isn’t.

If the interests of the individual and the system intersect, the latter can instantly freeze all of his assets. In the past, when money was in cash, none of this was possible. Programmable finances will only aggravate the situation.

It was at this point appear cryptocurrencies. Their goal is to make a digital form of money is available to all, without any controlling hand. Authorities are carefully eyeing the idea of creating their own cryptocurrencies. They want to get all the benefits of bitcoin, but to maintain control, losing sight of the essence of the global digital currency.

Technology can be used for good and for evil. Nuclear energy feeds electricity to millions of homes, but it is also capable of a second to destroy them. Cryptocurrency in this sense, are no different.

As a society we must decide how to use this new technology. Do we need a world with open, decentralized, free financial system? The people’s money created by the people and for the people? Or do we want a world in which the authorities have full control of financial flows and decide who and how to live?

In the next decade we will have to answer these questions.

The opinion of the author may not coincide with the position of the editorial Board

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