According to a Deloitte report, the Government Accountability Office announced it found $137 billion in improper payments in 2015, an increase of $31 billion in just two years. (source: deloitte)
And did you know that the government is using legacy systems to support our financial system that are more than 50 years old? (source: Government Accountability Office).
In this paper I will explain the history of the United States Dollar and why the implementation of a blockchain backed currency (commonly known as a Cryptocurrency) is a far greater benefit to the Government and the People of the United States of America than it is harmful. Furthermore, I will provide evidence that it is the only way for the US to maintain relevance in the imminent global currency war.
The current economic system backing the USD is fundamentally flawed. For a long time our currency was backed by gold, but during the great depression Roosevelt cut the dollar’s ties with gold, allowing the government to pump money into the economy. After WWII, the gold standard was placed back on the dollar and the world economy became reliant on the USD when it was used as an instrument to rebuild all of Europe through debt.
In 1960 the Organization of Oil Exporting Countries (OPEC), which controls over 80% of the world’s’ oil, came together and agreed to use the USD for all their transactions. This was the birth of the “petrodollar”. The USD’s demand became closely related to the trade of oil which turned out to be a very major deal when in 1971, the United Kingdom redeemed most of its U.S. dollars for gold. In reaction President Nixon took the dollar off the gold standard to protect the remaining gold reserves. As a result, the value of the dollar plummeted, but because of the petrodollar so did oil.
The dollar that the American economy is sustained by became based upon the trade of oil to back the currency’s demand. After all, every currency works off supply and demand just like Bitcoin. Demand for oil has been huge and through the monopoly on oil trade the US gained international leverage to force trade embargoes and sanctions on countries across the globe. Not to mention the war on oil which has lasted decades and been an unfortunate key to the country’s strong economy.
Many small countries are tired of America’s control and looking to reduce absolute dependence on the USD. According to the Element Group the Eastern-Caribbean Islands, Iran, Turkey, and Thailand are all piloting cryptocurrency projects to reduce reliance on the USD due to policy related tensions.
The point is that the USD has not stayed the same for hundreds of years as most people believe. It has a long and transformative history where the government has proactively adapted to stay at the forefront of the world economy. As we move towards renewable energy and a digital world the government has to be willing to adapt as they have proven to before. Oil is not forever.
“The USD has not stayed the same for hundreds of years as most people believe. It has a long and transformative history…”
The future of the US Dollar will involve a technological infrastructure backed by blockchain technology. This can enable the government to better track fraud, compete in an untapped global consumer market, and implement currency native upgrades like transparent transactions, smart ownership, and digitized financial instruments.
The first contention is that a digital currency will bring improved technology infrastructure — smart contracts, utility trading, p2p markets, less monopolies and more spread out wealth.
Government institutions’ processes around fiat currencies are plagued by long clearing times, intermediaries that take significant cuts, and outdated infrastructure. Adopting a cryptocurrency would offer the opportunity to upgrade these systems. This is becoming more of a realistic possibility as we see big tech companies that are also service providers to the government, such as IBM, creating blockchain technology infrastructure (e.g., Hyperledger). This will enable and improved technology infrastructure including: smart contracts, utility trading (like trading energy), p2p markets, less monopolies and more spread out wealth.
Improved infrastructure can improve government efficiency and effectiveness due to the peer-to-peer nature and intermediary cutting aspects of cryptocurrency.
According to Samson Williams, Bitcoin could facilitate a payment and settlement platform between government agencies — “an Agency to Agency Electronic Cash System” — to get all the radical benefits of distributed ledger technology — with no intermediary fees (source: Samson Williams). Government agencies could track transactions using a cryptocurrency on a permissioned, distributed ledger which allows them to greatly reduce and most likely eliminate high intermediary fees. This money that is then saved could be placed elsewhere where it’s actually needed.
Implementing a cryptocurrency can allow the government to enable a plethora of technological upgrades. Crypto can enable
If the government adopts cryptocurrency, it will curb fraud that currently exists in the system. But this brings up the obvious question, what proves that a cryptocurrency can reduce fraud? For the sake of staying within the scope of the paper I will not go into detail on how cryptography and algorithmic consensus are leveraged by blockchains to maintain transaction authenticity and how they eliminate fraud. Some info on this can be found in a previous article here.
To answer the question simply, cryptos reduce fraud by adding transactions into a blockchain ledger that are immutable and digitally signed. This means the records are unchangeable and, once agreed upon by the thousands of node in a network, cannot be changed. This is called Triple Book Accounting. Compared to the traditional accounting system (Double Book Accounting) where two private parties are in charge of managing their own transactions.
Working to reduce fraudulent behavior demonstrates to citizens that the government shares an obligation to balance its books. This level of fraud prevention yields trust which is a necessary value for a people to have with their government.
A fraud prevention-focused strategy can be doubly lucrative. Prevention saves not just the cost of overpayments, but also the cost of the chase. Potential fraudsters, moreover, are often discouraged from committing fraud and abuse if they know their behavior is being watched, tracked, or unchangeable.
The U.S. has been one of the most powerful countries in the world due to its economy, political influence, technological advancements, and military. Adopting cryptocurrency enables the US to retain its competitive advantage and reputation as a global leader.
Global leaders are finding ways to implement cryptocurrency in their countries. For instance, Estonia’s e-resident program has a 100-to-one-euro return on investment for its e-Residency program, which lets anybody start a business from afar. They are even planning to launch ‘estcoins’ their own cryptocurrency. According to a cost-benefit analysis published by Deloitte, Estonia has so far brought 14.4 million euros ($17 million) back to Estonia in net financial proceeds and indirect socio-economic net benefits, a number the consulting and financial services firm predicts will rise to 1.84 billion euros ($2.17 billion) by 2025. This represents a return of 100 euros for every one euro invested in the program.
Simply, if successful, the country will be at the forefront of the Internet of Value driving the growth in investments, technological resources, and talent that will flood into and through the United States.
Even if this is a distant future, it WILL be worth it! And this cryptocurrency doesn’t need to replace the US dollar or be accepted by the entire federal government. My burden is to prove that any size of government, even at the State or Country level, can benefit by adopting a cryptocurrency to supplement and improve the current system.
For the government to successfully adopt cryptocurrency, we need mass adoption of the market first, which will take time. This mass adoption of cryptocurrencies will be led by investments that will improve and evolve the current state of the technology. The magnitude of the impact of reduced fraud, global leadership, competitive currency advantage, and better technological infrastructure will have positive returns. We cannot stop innovating regardless of setbacks. It will take several years, maybe even more than a decade, but the impact of the government adopting a cryptocurrency outweighs the timeline required to realize these advancements. But one thing is for certain, tomorrow’s future will come eventually. Will the US be on the pro side, the side of innovation and transparency, or will it be on the con side, too grounded in traditional thought to adapt?
Thanks for reading and hope you learned something, this argument was originally presented by Tess Pereira and I at TechDuels in DC. I am currently a CoFounder at KoinStreet, follow us on Medium to get our weekly articles, we are also launching a biweekly newsletter so head to our website to sign up! If you’re interested in speaking with a community of blockchain experts to ask questions, listen to, or simply talk to join our telegram ! Appreciate the support so far, I’ll continue writing weekly articles to try to shed light on the complex topics that are Blockchain, Bitcoin, and Digital Assets.