The Bank of Canada (BoC) has released an exploration paper detailing the ramifications the institution would face in creating a state-backed cryptocurrency.
Signaling in the least the BoC’s interest in the natively enabled possibilities of the crypto space, the paper specifically “addresses the question of whether a central bank should issue digital currency that could be used by the general public.”
The conclusion? Maybe.
— Coin Spectator (@coinspectator) December 3, 2017
One of the main concerns the BoC researchers highlighted is the potential extinction of seigniorage after the implementation of a state-backed cryptocurrency. Seigniorage, of course, is the profit made from the “exchange of bank notes.”
Obviously, then, a state-backed crypto in Canada (or elsewhere) would presumably decimate banks’ seigniorage profits because such a crypto would largely — or totally — mitigate the need for transacting in paper notes in the first place.
The BoC’s suggested counter to make up for this potential extinction? Making the state-backed crypto of Canada fee-less for users.
To this end, and at its best, the hypothetical Canadian state crypto would compete with Bitcoin and other payment channels thanks to its fee-less model. And that point, the cryptocoin could become popular — and valuable — enough to offset the loss of seigniorage:
“[With] no transaction fees charged by the central bank, the benchmark [cryptocurrency] would probably be less expensive for merchants than cash and credit cards.”
If this interest does end up materializing into a real project, then Canada would join the likes of Russia with its “cryptoruble” and Dubai with its “emCoin.”
For now, the verdict’s still out.
Many crypto enthusiasts — such as rumored Satoshi Nick Szabo — think state-backed cryptocurrencies are nothing short of any oxymoron.
We’ll have to wait and see if the whole “nationalization” of cryptos turns out feasible or unfeasible.
TLDR: The Bank of Canada (BoC) is exploring what creating a state-backed cryptocurrency might look like, having just published a research paper on the topic.