Then One/WIRED
The US government has been seriously studying bitcoin for about two years now. The FBI knows how to seize the digital currency. The Marshal’s Service knows how to sell it. The IRS knows how to tax it. And now, the Federal Reserve should copy it.
So says James Angel, a professor of economics at Georgetown University. He thinks the government should create what he calls “bitdollar,” a bitcoin-like digital currency that’s backed by the US dollar.
Yes, many believe the whole point of bitcoin is to separate money from the governments of the world. But bitcoin also seeks to create an open payment network anyone can use without jumping through the hoops that encumber, say, credit card or international money transfer networks, and Angel thinks the government can help accomplish such a thing. He is among those who believe the really powerful idea is bitcoin as a payment system, rather than bitcoin as a currency.
‘I think Janet Yellen ought to get out in front of this.’
A bitdollar would help bring the idea of an open payment network to “maturity,” he says, and because it would be backed by the dollar, it could bring new life to foreign countries struggling for economic stability, such as Venezuela, by giving them a stable digital currency. “I think Janet Yellen ought to get out in front of this,” Angel says, referring to the head of the Federal Reserve, “to basically put some competition into the payment space.”
Angel isn’t alone in exploring a merger between government and bitcoin. The world’s governments already are looking for ways to regulate bitcoin. And the Canadian government has explored its very own digital currency, MintChip, which is something akin to Angel’s proposal.
The Canadians eventually shelved their MintChip dreams, but the rise of digital currencies seems inevitable. In some shape or form, the governments of the world must learn to accommodate them. Indeed, just last month, the Bank of Canada said a Canadian digital currency might be back on the table.
Like bitcoin, Angel’s bitdollar would run across a vast network of computers, and it would use a public ledger akin to bitcoin’s blockchain—meaning all transactions would be recorded online for all the see. But it would differ from bitcoin in how it encourages people to set up the machines needed to run this massive system. Rather than just paying them in newly minted bitdollars, it would give them a small cut of every transaction that happens on the network. And it would be backed by the greenback, which would eliminate some of the seesaw volatility that has spooked some would-be bitcoin users.
These aren’t huge changes. But the very idea of a government-backed digital currency is sure to horrify the bitcoin faithful. One of bitcoin’s central premises is that it’s a deflationary currency—only about 21 million bitcoins will ever be created—and Angel’s Fed-backed bitdollar wouldn’t have the same kind of restriction. “One of the most important characteristics of bitcoin is the limited supply,” says Roger Ver, a well-known bitcoin entrepreneur and evangelist. “If the supply is unlimited, it isn’t nearly as interesting.”
‘One of the most important characteristics of bitcoin is the limited supply.’
But as a grass-roots currency and payment network, Angel says, bitcoin itself will have some big problems getting regular folks to use it. Bitdollars wouldn’t have that problem. “The main benefit is that you’ve got the network advantage of the US dollar. You basically would provide instant legitimacy,” he says.
Angel is a fan of the technology behind bitcoin, though. He thinks the blockchain is an important, even disruptive, technology we should all pay attention to. He’s just co-authored a paper rebutting Paul Krugman’s assertion that bitcoin is evil. But like Krugman, Angel doubts bitcoin will ever make it to the big time and challenge established currencies or payment networks. “Right now,” he says, “bitcoin is still seen as a novelty and the bit-fanatics are seen a kind of out-there on the fringe.”
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