As Germany calls for an end of US dominance in global payments, as Russia backs Turkey in local currency international trade, as Iran unveils plans for a national cryptocurrency and as Turkey hints at blockchain tech utilization for money outside of political interference, the tokenization of geopolitics has probably begun.
Money is at the root of all economies. As such, any invention in the nature of money has repercussions. That blockchain based currencies are such an invention is now difficult to deny, but how could this be utilized at a state level?
One proposed idea has been to in effect upgrade the current financial system by just moving it all onto the blockchain. So you keep everything as it is and you just fit the blockchain within it.
This is, of course, how the internet begun being adopted. The first business websites were in effect a copy of brochures or flyers. Some of the first documents were just scanned paper. Private internets (intranets) were sort of everywhere. Same arguments made now in regards to public blockchains were made then.
All of it understandable because the ideas were so new, its capabilities unknown, its evolution no one could predict, so naturally people did the easiest thing of x but online or as now they say x but on the blockchain.
That’s what, in many ways, appears to be Iran’s idea of a national cryptocurrency. Rial, but on the blockchain. The central bank keeps printing as much as it wants, others might or might not have access, it might or might not be secure, it might or it might not have any utility.
A database, basically, that others can access in a read only mode but some admin has the ability to change any aspect of it with that admin potentially including a hacker who may well be a kid having lulz or a global/regional power.
That’s because the main ingredients here are missed. Decentralization is the obvious one and decentralization is not an idealogical thing or a nice to have thing if you are going to run a national digital money with the same benefits as blockchain based cryptos.
It isn’t because security is quite important, as is its global nature, as is the trust requirement whereby you can be sure your money won’t just vanish if you have an argument with some admin.
All of which means, in our view, Iran has missed a trick. The first trick they’ve missed is that to re-invent the wheel is a lot more difficult when bureaucratic committees are in charge. The second trick is that their own blockchain would probably never have the trust, the security, the global reach, the sheer talent and innovation that a public blockchain does, like ethereum in particular but also others.
So if we were running Trustnation and we wanted to adopt this technology, we would do so in one of three ways starting with the easiest, most boring, and thus not the best one.
The first option would be us telling our developers to write some smart contract and system whereby our central bank bureaucrats can turn one rial or whatever fiat into one rial token, with the token holders able to redeem the token for rial.
Tether, basically, but state backed. It would be a lot easier, probably a lot more secure, far more global, and thus with more benefits than having our own easily attackable private chain. While at the same time it would provide all the control over issuance and so on.
A second and more interesting option would be to turn our government debt (bonds) into money. All current money is of course debt, but it is debt by central banks and commercial banks. As a state, gaining some independence from both of them would be very appealing.
It would add some complexity because now you have pure fiat money from thin air and a bit more proper money backed by future taxes with that proper money further going to the government which can spend it on roads and so on, rather than it all going to commercial bankers.
For that, however, Trustnation would have to be a pretty innovative nation with some reason to fit in their busy schedule this considerable change in how things are done.
Venezuela, of course, had such reason because they are on their knees. Their government, however, does not have a fine reputation and Trump banned their Petro, so their token has to deal not only with being so innovative that a lot has to change, but also with considerable constrains.
If it was someone like Turkey, where officials there are hinting at utilizing blockchain tech in the matter of money, then the experiment would be far easier, with its results far more clear.
Yet Trustnation is of course very innovative, so in addition, or as an alternative, they could further copy DAI, which is all open source, and peg it to their own fiat currency.
Then you’d have a very trustable token that is quite transparent with no one able to doubt its redemption and so on, while at the same time allowing this tokenized fiat to go anywhere in the world within seconds for almost free.
You’d, therefore, need not any SWIFT or anything, with your national money so running on a global unhackable blockchain with thousands of nodes, including presumably the ones your own bureaucrats run.
So while Putin keeps stockpiling gold, it is not far fetched to see national governments stockpiling cryptos if for nothing else so as to have it as collateralization if indeed we are right that tokenizing fiat money is useful which in many ways appears to be self evident.
Saiyan level is however not reached until Trustnation employs all the digital price data and so on to algorithmically determine the optimal level of fiat or fiat token issuance with the aim of keeping prices stable whereby 1 token buys the same amount today as a decade from now or prior.
That is what MakerDAO is trying to do, but it is probably far too advanced for at least the next half decade. Yet it probably can be done and it doesn’t need to be on a private blockchain. That’s because a token, in many ways, is a private blockchain.
Ethereum is Turing complete. So you can code anything you want in a smart contract, including something like give access to x only if they provide y. You can have a function in there where you can increase or decrease the amount as you please and so on.
The difference, of course, is that it is on top of ethereum or a base layer which is global in nature, trustable as it is very decentralized, secure as proven by years of not being hacked, and so on.
Which means one needs not deal with all those base layer aspects, but can focus on what can be done on top of it, with some things, like tokenized fiat, very much doable now and a lot more easily than in a private blockchain.
Learning, however, is through trial and error. So it is only natural some errors would be made as only experience can reveal them, but as we learn more about the potentials, so too it becomes more clear just what can be done and just what might be the ramifications.