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Hedera Op-Ed: Who will create the first real state-backed cryptocurrency?
When thinking of emerging digital economies, Venezuela does not naturally come to mind. However, with the Petro, or Petromoneda, Venezuela created the first state-backed cryptocurrency. While some may laud this as a good step in the right direction for an impoverished country, it is important to clarify what exactly the Petro is. Unlike the US dollar, the Petro is not a FIAT currency. FIAT currencies are the most widely accepted means of exchange in the world and are backed up only by the holder’s confidence in issuer’s government. When former President Richard Nixon took the US dollar off the Gold Standard (previous to 1971 every US dollar was backed up by a requisite amount of gold held in the Federal Reserve), it became a FIAT currency, and the world followed suit. The Petro, on the other hand, is essentially a commodity, where its value is guaranteed by Venezuela’s reserves of oil and minerals. Rather than a smart way to increase national digital commerce, the creation of the Petro was a means to an end for President Maduro to circumvent US sanctions and functionally move money around in an economy decimated by hyperinflation. But rather than looking at a depressing example of state-backed cryptocurrency is, let’s have a look at what it can be.
If a western country introduces a state-backed cryptocurrency, it's not likely to be the United States at first. While the US may be known as a technology leader, making the switch to cryptocurrency would be nearly impossible without throwing the markets in chaos. It is also worth noting that that the financial disruption making waves in China and other countries has not made its way to the US yet. Thus if people in the US refuse to use QR codes to buy products, they probably won’t like paying with a Fed-backed bitcoin. The US dollar also essentially functions as a meter stick, providing other countries a relative measurement for how their currencies are performing as a store of value. For those reasons and many more, the US will not turn to cryptocurrency until the rest of the world does.
There is one place where a state-backed cryptocurrency would likely thrive; in an Asian country where growth has been exploding via a tech boom. Because of the nature of these countries’ economies, it would be possible for a state-backed cryptocurrency to succeed. In Asia, both China and South Korea are a good place to scale a cryptocurrency across a population. Both nations have a technologically adept population with the digital payment infrastructure set up so that a switch could be possible. South Korea is already known for its citizens holding cryptocurrency with over 30% of salaried workers holding crypto assets. Following the crypto bull run in 2016, South Korean regulators were praised for their progressive and thoughtful reaction to the markets compared to the near-silent American SEC. Given China’s aggressive surveillance policies, adopting a cryptocurrency would be largely beneficial to government efforts. Tracking a citizen’s finances across a blockchain is much easier than tracking the combination of digital and physical payments made with Chinese Yuan. All accounted for; I believe a state-backed cryptocurrency will have the best chance of surviving in China or South Korea.
State-backed cryptocurrency will eventually improve the lives of first world consumers. But those whose lives will be fundamentally changed by state-backed cryptocurrency are likely to live in third world countries. When state-backed cryptocurrency eventually is implemented in these countries, this will be the first time many of their people have ever had a bank account — having people from these parts of the world connected to the global economy will fundamentally change economic and political dynamics. A massive phase shift is coming if governments are prepared for it. We can only hope that developing countries’ governments will not create another Petro and instead make sure their state-backed cryptocurrency is fast, fair, and secure.
NB: Regional experiments and other efforts would precede any nation adopting cryptocurrency as a primary store of value. The article glossed over this notion because many regions are testing cryptocurrency for payment processing, but this does not mean that said countries will turn around and replace their monetary systems. Smaller countries like Singapore are also likely to be in the first wave of state-backed cryptocurrency adoptions. While these countries may be first out of the gate, the scaling challenges they will face pale to that of any populous country.