Establishing the Central Bank of Bitcoin
Establishing the Central Bank of Bitcoin
The year is 2024. It seemed like a piece of nostalgia to open a new bank account
and get a free toaster, but this wasn’t any ordinary toaster, and it certainly wasn’t
any ordinary bank. The new Internet of Things Toaster was one of the coolest
gadgets of all times, and the Global Bank of Bitcoin was a charter member of
Bitcoin’s new Central Bank based in Luxemburg.
Having launched as a Kickstarter project in 2022, raising millions in the process,
this kitchen appliance elevated “toast” to the level of a new communal food with a
designer flair. Old-fashioned bread could have 3D-printed toasted-inlays ranging
from jams and spreads, to vitamins and dietary additives, to sweeteners and
energy laces.
But what people found most magical was its ability to have animated hi-res
images print-toasted onto the surface and brought to life through the use of
edible electro-jellies. This next-gen food-tech had given rise to a myriad of party
games, where “players” told stories about the animated scenes and “toasted” the
other participants by eating the face of their favorite protagonist, one bite at a
time, until both the story and the food were totally consumed.
For this new crypto-bank, it was the perfect crypto-gadget to draw attention to
their crypto-currency. Similar to traditional banks, accountholders could apply for
home mortgages, car loans, and establish retirement accounts. But unlike
today’s highly monitored, highly regulated banking world, the Central Bank of
Bitcoin’s charter was to be more of an anti-central bank, serving as a passthrough shell without taking ownership of the currency, but rigorously guarding
the anonymity of the accounts and transactions, as well as the integrity of the
networks, at the same time, adding a systems layer to promote wider scale
adoption.
Even the super-libertarian backers of cryptocurrencies had begun to realize the
limitations of operating without a support structure, and in its absence a myriad of
proprietary technologies, destructive thinking, and bad actors had begun rearing
their ugly heads.
While the original purpose of Bitcoin was to build a counterculture currency and
transaction network free from the intrusion and prying eyes of big government, its
role has begun to evolve into more of a checks-and-balance system to offset
abuses by the worlds existing banking system.
Here’s why creating a Central Bank for Bitcoin may be the logical next step.
Crypto Currencies Today
The first cryptocurrency, Bitcoin, was created in 2009 by a mysterious developer
using the pseudo-name Satoshi Nakamoto. In 2010, the secretive Satoshi
handed the reigns of Bitcoin over to Gavin Andresen, a like-minded developer
who now manages the operation along with a team of five senior developers.
Less than a third of the original Satoshi code still exists. The rest has been
rewritten by Gavin and his team to plug security holes, improve usability, and
make it operationally more efficient. Andresen is the one who conceived of the
nonprofit Bitcoin Foundation—established in 2013—which is the closest thing to
a central authority in the world of Bitcoin.
While we hear a lot about Bitcoin there is far more going on with cryptocurrency
startups.
Last week a total of 26 new crypto-currencies were added to the public lexicon
with names like Nimbus, Vaultcoin, Darkfox, DeafDollars, and QuietCoin all
screaming to be heard above the frothy growing pains of this newbie
environment. With Bitcoin’s original source code now open to the public, the
number of new cryptocurrencies that have entered the marketplace is over 1,000,
averaging well over a dozen new players every week.
Even though most will make little more than a blip on the currency world’s radar
screen, currently 27 crypto-coins have cap rates of over $1 million, with Bitcoin
far outpacing the rest of the pack with a valuation of over $6.4 billion.
Rounding out the top ten are Bitcoin, Ripple, Litecoin, NXT, BitShares X,
Peercoin, Darkcoin, Dogecoin, NameCoin, and MaidSafeCoin.
Tenuous Legal Status
Cryptocurrencies are legal in all countries except Iceland, due primarily to
Iceland's freeze on foreign exchange. In Feb 2014, a cryptocurrency called
Auroracoin was launched in Iceland as an alternative to Bitcoin and the Icelandic
króna, but so far is exhibiting all the telltale signs of being a complete failure.
Controversy over the misuse of cryptocurrency has also led to restrictions in
certain countries. As an example, regulators in China banned the handling of
Bitcoins by financial institutions during an extremely fast adoption period in early
2014. In Russia, even though cryptocurrencies are perfectly legal, it is illegal to
actually purchase goods with any currency other than the Russian ruble.
On August 6, 2014, the UK announced its Treasury had been commissioned to
do a study of cryptocurrencies, and what role, if any, they can and will play in the
UK economy. The study was also to report on whether they should be regulated.
With the UK and others on the verge of issuing some kind of regulation, the
primary tool to avoid piecemeal laws and directives will be to develop a Central
Bank to serve as the interface for national watchdogs.
The Purpose of a Bank
Typically a bank is a financial institution that is involved in borrowing and lending
money. Lately, however, the lending side of the equation has turned into more of
a bizarre shell game where banks have become so massively risk averse that the
only lending happens to government-backed borrowers and over-collateralized
businesses and people.
Primary purpose of traditional banks:
1. Keep money safe for customers
2. Offer customers interest on deposits, helping to protect against money
losing value against inflation
3. Lending money to firms, customers and homebuyers
4. Offering financial advice and related financial services, such as insurance
Creating a Business Model for the Central Bank of Bitcoin
Most countries have some form of Central Bank serving as the principle authority
for their nation's financial matters. In this role, a Central Bank will implement
monetary policy, promote economic stability, manage the production and
distribution of the national currency, and keep the public informed about the
overall state of the economy.
However, a Central Bank for cryptocurrency will have the latitude of performing
an entirely different function. This bank will neither have the accountability of
managing, influencing, or keeping a specific economy afloat, nor will it have a
constituency relying solely on its performance.
From a business standpoint, cryptocurrencies need to watch out for their own
users and are primarily accountable for their network, the integrity of their
system, and the technology driving it. But from a global systems perspective, a
Central Bank governing one or more cryptocurrencies will have a rather different
charter.
In a globally competitive banking environment, where cryptocurrencies are the
new kid on the block, part of the Bank’s role will be to establish the ground rules
to coexist in today’s global monetary systems. Declaring war against current
banking systems is in no one’s best interest.
Operating without the benefit of an existing legal system, the Bank will need to
establish its own forms of mediation, arbitration, and virtual courts for resolving
disputes.
It will also need to become the chief evangelist, advocate, and enabler of both
current and future cryptocurrency technology. In this capacity the Bank’s role will
be to envision and anticipate future technologies and design systems and
architecture that allows for a wide range of implementation strategies.
Today’s Central Banks have ways of lending money into existence, but
cryptocurrencies typically use a system for “mining” their coins into existence.
One of the new Central Bank’s mandates could be to discover new and better
options for expanding an existing money supply.
Some of the Central Bank’s other roles may be better understood with the
following scenarios.
Possible Scenarios
There are many analogies that can be drawn between today’s cryptocurrencies
and the Arpanet in the 1960s. While we suspect we’re on the verge of something
great, we don’t exactly know where it will take us.
Here are a few not-so-obvious questions to help us think through what may be
possible.
How long before Bitcoin is accepted at our biggest retailers like Wal-Mart,
Amazon, and Target?
How long before a person can live for an entire year using no money other
than Bitcoin?
How long before someone is able to take out a home loan, car loan, or
business loan in cryptocurrencies?
How long before we see a political candidate announce that they will only
accept donations through Bitcoin or other cryptocurrencies?
How long before people can purchase a $10 or $100 Bitcoin card in
grocery stores and use it online?
How long before a cryptocurrency is formally adopted as an individual
nation’s official currency?
How long before we see financial instruments and contracts encrypted
with a blockchain from Bitcoin or some other cryptocurrency to avoid the
prying eyes of governments and industrial espionage?
Is the intrusiveness of governments forcing people underground? Is there
a point at which cryptocurrencies will be considered a threat to national
security?
Final Thoughts
Cryptocurrencies are an organic technology. Much like planting a thousand new
seeds into the ground, a significant percentage of these fledgling new currencies
will begin getting traction.
With Bitcoin being the flag bearer for this emerging industry, it will bear the brunt
of most of the attempts to control it.
The same cryptography that makes cryptocurrencies secure, is what makes it
anonymous. Even though many think that “fiat” money is based on trust and has
no inherent value, the same cryptography that makes every transaction safe,
gives it inherent value.
In a digital age where cash is the only remaining form of anonymous currency,
and even cash is being heavily monitored, cryptocurrencies have become a
solution to “intrusive big government” issues.
Even though many Bitcoin transactions are for nefarious purposes, the
advantages far outweigh the disadvantages. Cryptocurrencies are on the verge
of reinventing our global monetary systems in ways we can’t yet imagine. And the
Central Bank of Bitcoin will be one of the key players to making that happen.
Starting with a vision for building the foundational underpinnings for a alternative
monetary system, the role of the central bank was not to declare war on existing
monetary systems, but rather to create a systems layer to encourage rapid
innovation, while at the same time, allowing them to peacefully coexist.
Here’s why this may or may not be the right direction for Bitcoin and its legion of
Altcoin followers.
The year is 2024. It seemed like a piece of nostalgia to open a new bank account
and get a free toaster, but this wasn’t any ordinary toaster, and it certainly wasn’t
any ordinary bank. The new Internet of Things Toaster was one of the coolest
gadgets of all times, and the Global Bank of Bitcoin was a charter member of
Bitcoin’s new Central Bank based in Luxemburg.
Having launched as a Kickstarter project in 2022, raising millions in the process,
this kitchen appliance elevated “toast” to the level of a new communal food with a
designer flair. Old-fashioned bread could have 3D-printed toasted-inlays ranging
from jams and spreads, to vitamins and dietary additives, to sweeteners and
energy laces.
But what people found most magical was its ability to have animated hi-res
images print-toasted onto the surface and brought to life through the use of
edible electro-jellies. This next-gen food-tech had given rise to a myriad of party
games, where “players” told stories about the animated scenes and “toasted” the
other participants by eating the face of their favorite protagonist, one bite at a
time, until both the story and the food were totally consumed.
For this new crypto-bank, it was the perfect crypto-gadget to draw attention to
their crypto-currency. Similar to traditional banks, accountholders could apply for
home mortgages, car loans, and establish retirement accounts. But unlike
today’s highly monitored, highly regulated banking world, the Central Bank of
Bitcoin’s charter was to be more of an anti-central bank, serving as a passthrough shell without taking ownership of the currency, but rigorously guarding
the anonymity of the accounts and transactions, as well as the integrity of the
networks, at the same time, adding a systems layer to promote wider scale
adoption.
Even the super-libertarian backers of cryptocurrencies had begun to realize the
limitations of operating without a support structure, and in its absence a myriad of
proprietary technologies, destructive thinking, and bad actors had begun rearing
their ugly heads.
While the original purpose of Bitcoin was to build a counterculture currency and
transaction network free from the intrusion and prying eyes of big government, its
role has begun to evolve into more of a checks-and-balance system to offset
abuses by the worlds existing banking system.
Here’s why creating a Central Bank for Bitcoin may be the logical next step.
Crypto Currencies Today
The first cryptocurrency, Bitcoin, was created in 2009 by a mysterious developer
using the pseudo-name Satoshi Nakamoto. In 2010, the secretive Satoshi
handed the reigns of Bitcoin over to Gavin Andresen, a like-minded developer
who now manages the operation along with a team of five senior developers.
Less than a third of the original Satoshi code still exists. The rest has been
rewritten by Gavin and his team to plug security holes, improve usability, and
make it operationally more efficient. Andresen is the one who conceived of the
nonprofit Bitcoin Foundation—established in 2013—which is the closest thing to
a central authority in the world of Bitcoin.
While we hear a lot about Bitcoin there is far more going on with cryptocurrency
startups.
Last week a total of 26 new crypto-currencies were added to the public lexicon
with names like Nimbus, Vaultcoin, Darkfox, DeafDollars, and QuietCoin all
screaming to be heard above the frothy growing pains of this newbie
environment. With Bitcoin’s original source code now open to the public, the
number of new cryptocurrencies that have entered the marketplace is over 1,000,
averaging well over a dozen new players every week.
Even though most will make little more than a blip on the currency world’s radar
screen, currently 27 crypto-coins have cap rates of over $1 million, with Bitcoin
far outpacing the rest of the pack with a valuation of over $6.4 billion.
Rounding out the top ten are Bitcoin, Ripple, Litecoin, NXT, BitShares X,
Peercoin, Darkcoin, Dogecoin, NameCoin, and MaidSafeCoin.
Tenuous Legal Status
Cryptocurrencies are legal in all countries except Iceland, due primarily to
Iceland's freeze on foreign exchange. In Feb 2014, a cryptocurrency called
Auroracoin was launched in Iceland as an alternative to Bitcoin and the Icelandic
króna, but so far is exhibiting all the telltale signs of being a complete failure.
Controversy over the misuse of cryptocurrency has also led to restrictions in
certain countries. As an example, regulators in China banned the handling of
Bitcoins by financial institutions during an extremely fast adoption period in early
2014. In Russia, even though cryptocurrencies are perfectly legal, it is illegal to
actually purchase goods with any currency other than the Russian ruble.
On August 6, 2014, the UK announced its Treasury had been commissioned to
do a study of cryptocurrencies, and what role, if any, they can and will play in the
UK economy. The study was also to report on whether they should be regulated.
With the UK and others on the verge of issuing some kind of regulation, the
primary tool to avoid piecemeal laws and directives will be to develop a Central
Bank to serve as the interface for national watchdogs.
The Purpose of a Bank
Typically a bank is a financial institution that is involved in borrowing and lending
money. Lately, however, the lending side of the equation has turned into more of
a bizarre shell game where banks have become so massively risk averse that the
only lending happens to government-backed borrowers and over-collateralized
businesses and people.
Primary purpose of traditional banks:
1. Keep money safe for customers
2. Offer customers interest on deposits, helping to protect against money
losing value against inflation
3. Lending money to firms, customers and homebuyers
4. Offering financial advice and related financial services, such as insurance
Creating a Business Model for the Central Bank of Bitcoin
Most countries have some form of Central Bank serving as the principle authority
for their nation's financial matters. In this role, a Central Bank will implement
monetary policy, promote economic stability, manage the production and
distribution of the national currency, and keep the public informed about the
overall state of the economy.
However, a Central Bank for cryptocurrency will have the latitude of performing
an entirely different function. This bank will neither have the accountability of
managing, influencing, or keeping a specific economy afloat, nor will it have a
constituency relying solely on its performance.
From a business standpoint, cryptocurrencies need to watch out for their own
users and are primarily accountable for their network, the integrity of their
system, and the technology driving it. But from a global systems perspective, a
Central Bank governing one or more cryptocurrencies will have a rather different
charter.
In a globally competitive banking environment, where cryptocurrencies are the
new kid on the block, part of the Bank’s role will be to establish the ground rules
to coexist in today’s global monetary systems. Declaring war against current
banking systems is in no one’s best interest.
Operating without the benefit of an existing legal system, the Bank will need to
establish its own forms of mediation, arbitration, and virtual courts for resolving
disputes.
It will also need to become the chief evangelist, advocate, and enabler of both
current and future cryptocurrency technology. In this capacity the Bank’s role will
be to envision and anticipate future technologies and design systems and
architecture that allows for a wide range of implementation strategies.
Today’s Central Banks have ways of lending money into existence, but
cryptocurrencies typically use a system for “mining” their coins into existence.
One of the new Central Bank’s mandates could be to discover new and better
options for expanding an existing money supply.
Some of the Central Bank’s other roles may be better understood with the
following scenarios.
Possible Scenarios
There are many analogies that can be drawn between today’s cryptocurrencies
and the Arpanet in the 1960s. While we suspect we’re on the verge of something
great, we don’t exactly know where it will take us.
Here are a few not-so-obvious questions to help us think through what may be
possible.
How long before Bitcoin is accepted at our biggest retailers like Wal-Mart,
Amazon, and Target?
How long before a person can live for an entire year using no money other
than Bitcoin?
How long before someone is able to take out a home loan, car loan, or
business loan in cryptocurrencies?
How long before we see a political candidate announce that they will only
accept donations through Bitcoin or other cryptocurrencies?
How long before people can purchase a $10 or $100 Bitcoin card in
grocery stores and use it online?
How long before a cryptocurrency is formally adopted as an individual
nation’s official currency?
How long before we see financial instruments and contracts encrypted
with a blockchain from Bitcoin or some other cryptocurrency to avoid the
prying eyes of governments and industrial espionage?
Is the intrusiveness of governments forcing people underground? Is there
a point at which cryptocurrencies will be considered a threat to national
security?
Final Thoughts
Cryptocurrencies are an organic technology. Much like planting a thousand new
seeds into the ground, a significant percentage of these fledgling new currencies
will begin getting traction.
With Bitcoin being the flag bearer for this emerging industry, it will bear the brunt
of most of the attempts to control it.
The same cryptography that makes cryptocurrencies secure, is what makes it
anonymous. Even though many think that “fiat” money is based on trust and has
no inherent value, the same cryptography that makes every transaction safe,
gives it inherent value.
In a digital age where cash is the only remaining form of anonymous currency,
and even cash is being heavily monitored, cryptocurrencies have become a
solution to “intrusive big government” issues.
Even though many Bitcoin transactions are for nefarious purposes, the
advantages far outweigh the disadvantages. Cryptocurrencies are on the verge
of reinventing our global monetary systems in ways we can’t yet imagine. And the
Central Bank of Bitcoin will be one of the key players to making that happen.
Starting with a vision for building the foundational underpinnings for a alternative
monetary system, the role of the central bank was not to declare war on existing
monetary systems, but rather to create a systems layer to encourage rapid
innovation, while at the same time, allowing them to peacefully coexist.
Here’s why this may or may not be the right direction for Bitcoin and its legion of
Altcoin followers.