Smart governments should have created digital cash

by Gene Michael Stover

created 2020???
updated Sunday, 2026 August 2

original at cybertiggyr.com/96c9a053.html

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Meta-context

I know I wrote this years ago, before the COVID Times, & posted it here, but I can't find it now. So here's a reconstruction in 2026 August of what I know I wrote years ago.

Context

The world could use digital cash.

Cryptocurrencies were a trust-less proof-of-concept for that, but they are so rarely used as digital cash. Fail.

Smart governments (a contradiction, according to some people), having seen cryptocurrencies & the enthusiasm around them, should have used that as a hint to create electronic versions of their own currencies.

A government could have create the software, open source for public review, to raise trust, & because, having been funded by tax dollars, it would belong to the people.

It wouldn't need to be decentralized like cryptocurrencies, but it would need to satisfy the requirements of cash.

In my old notes, below, it sounds like I was thinking of Bitcoin specifically. Bummer, that. Or maybe bad writing.

Old notes (what I could dig up of them)

Bitcoin failed

• Biggest problem: Even the fanboys fail to view it as a currency. They view it as an investment ("store of value" or "digital gold"). Right there, for non-technical reasons, it failed as a currency.
• Transaction latency is too high (at least minutes, I've seen weeks).
• 7 TPS and no sign of raising.[02]
• Lightning network will lead to spoke-and-hub model, which will lead to centralization.
• Mining is already centralized.
• Mining is not environmentally sustainable.
• Mining has huge externalities.[03]

I've heard the clam that Bitcoin was the proof-of-concept for electronic cash. That's a decent assessment, but here's a better one: Bitcoin is a proof-of-concept for a blockchain. Yes, the real invention here is the blockchain, and Bitcoin is an application of it.

Requirements for a workable electronic cash (suggestions to the fanboys)

To be a workable electronic cash, a system needs (or the fanboys should)...

• Stop talking about overthrowing governments and shirking your tax responsibilities. The rest of us want no part of that; you put us off when you spew that crap.
• Get people to think of it as a currency.
  • Currency is when people think it's a currency, then they use it to buy and sell things.
  • When they buy and sell it with other currencies, it isn't a currency.
• Latency low enough to be convenient for casual transactions.
  • Dash managed this.
  • Probably other cryptocurrencies have solved it, too.
• Must be apparent to the average person that no government, profit-making corporation, or special interest group can break it, deny access to it, or change the rules.
• Environmentally sustainable.
• Decentralized. If any part of it centralizes, you might as well stick with fiat.
  • Encourage people to use active nodes, nodes that help make decisions in the system. (In Bitcoin that's miners, but there may be other forms for other systems, which is why I said "active".)
  • Do you need miners? What if there is another kind of node that can make most of the decisions? (Iota did this.)
• Fix[00] transaction fees.
  • Could you arrange things so that miners make about a 15 percent profit over the cost of operation? In other words, the fee for a transaction would be about 1.17 times the cost of processing the transaction. (Cost of processing the transaction would be something like sum of costs of electricity, network connectivity cost, maintenance (on-site human staff), cost of the hardware, amortized over number of transactions.)
  • If practically everyone runs an active node of roughly equal power and cost, you might not need transaction fees at all. Everyone pays the fees by operating their own active node. Requires almost everyone to run an active node, though it needn't be the node they carry in their pocket.
• Make it scale.
  • With Bitcoin as you add miners, the network's capacity stays exactly the same. By design, it is not scalable.
  • A scalable network increases capacity as you add nodes. Might not increase linearly, but should increase.[01]
• Offer real anonymity.

Non-requirement: Limit total ledger size

Concerns about the total block chain size are a red herring.

It's true that someone (more than just one), somewhere, should have a copy of the entire history, but few nodes need it for every transaction, even few miners. Assuming your system works something like Bitcoin, then when well-behaved (law-abiding) clients create payments, they might as well use their oldest unused inputs. That reduces the history required for most transactions.

Here's another way to look at it: In the 21st century, every electronic transaction, especially those that are not electronic cash, are already recorded in ledgers, probably many ledgers. Consolidating them doesn't create a new databank; it centralizes an existing databank. (Oh, and remember to preserve anonymity and protect privacy.)

Reality check

Does the world need an electronic cash? Let's think about the use cases for electronic cash.

• Buy from online store, ship to me.
  • Store needs my address. Store records the transaction in their records. Ain't no point in the anonymity of cash here.
  • I might want the possibility of a refund in case the merchandise doesn't show or has some other problem. Store might offer the refund feature when I use electronic cash, but a credit card does, too.
• Buy from online store, ship to a friend or relative. Ditto.
• Buy from online store, ship to someone (not me), don't want that someone to know who sent it.
  • Seems like a stalker move.
  • Yes, someone could legitimately, without intending or doing harm, want this use case, but it's gotta be one in a million. Seems pretty low priority.
• Anonymous donation to a charity or other organization.
  • Legit, if rare, use case for electronic cash.
• Purchase outlawed products. (I assume you have a way around the shipping address problem.)
  • Arguably legit use case.
  • Why are those products outlawed? Would your energies be more productive working within your legal system to legalize those products?
• Purchase online service. (Example: subscribe to online newspaper or a pay-to-play online game.)
  • Legit.
  • Be sure to access it with a VPN or at least Tor, else the anonymity provided by your electronic cash is wasted. But yeah, it's a good use case.
• Buy something expensive like land, a house, or a car.
  • You want tracability and refundability with this transaction. And there will be so much other documentation, so many witnesses, that anonymity will be impossible.

I don't see many use cases for electronic cash, but I would appreciate having the option to use it.

What a smart government would do

• Don't worry about the cryptocurrency fanboys. Don't outlaw them or hassle them. Their cryptocurrencies probably won't become currencies, and they might invent something useful as a byproduct of fiddling with their blockchains.
• Offer an electronic version of your traditional cash.
• Make it a service of your current mint (or money-printing department or federal reserve or whatever you call it).
  • If nothing else, your mint can claim to be an up-to-date active participant in the digital age.
• Be honest and open.
  • Specification is public, freely obtainable, by anyone.
  • Rationale: If Kerckhoffs's principle doesn't convince you to open the spec, how about this: Whatever you create using taxpayer dollars belongs to the taxpayers, so they have a right to access it all they want.
• Offer all the features of cash, but the advantages of existing in cyberspace.
• "Blockchain" is an implementation detail.
  • Your electronic cash needn't use a blockchain.
  • I'm aware of a dozen electronic cash ideas from the 1990s that don't use blockchains.
• Poach cryptographers from your spook departments.
  • Get the best in the field!
  • Give them something constructive to do instead of spying on their fellow citizens without warrants. They'll probably be thankful for the career change.

What Actually Happened

I'm adding this section on 2021 April 22. Time will tell whether it becomes “I saw this coming” or “Governments are short-sighted”.

• 2021 Apr 20. Bank of England creates task force to consider implementing a digital cash system that would exist along site the traditional, physical cash system. The task force is to consider it, doesn't mean that they will actually do it. [BBC's copy]
• 2022 January. USA's Federal Reserve Bank talks about a digital dollar. Sadly, I'll bet that a digital dollar will not be a digital cash. More sadly, I'll bet that the cryptocurrency fanboys by now know so little about digital cash that they won't spot that weakness in the system. [USA Today]

Notes

[00] fix

Hint to the reader: "Fix" is a pun, inserted not just for levity.

[01] scalable

The claim I've heard is that more miners leads to more hash power leads to more security, but is more "security" always better than improving other features? Always?

[02] 7 TPS

Let's be clear about this: 7 transaction/second for a global cash system is a fucking joke.

[03] externalities

https://en.wikipedia.org/wiki/Externality

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