A scheme like this, says Gupta, might gain
popularity and ultimately result in the slow
disappearance of physical cash.
“I’d imagine people first get com-
fortable spending Fedcoin on things like
groceries and movie tickets,” he says. “As
people realize it’s easier than cash, as
businesses realize it’s cheaper than credit
cards, and as banks realize it’s literally
more secure, so goes the process by which
dollars are phased out of the money sup-
ply and Fedcoin phased in.”
This isn’t just an academic thought
experiment. The Bank of Canada built a
simulation for such a currency, on a block-
chain similar to Ethereum’s, in 2016.
What such researchers are finding is
that a digital version of state-run currencies could match or even improve upon the
efficiencies of Bitcoin. Gupta believes that
transactions should be processed much
faster when a central bank is behind the
system (as opposed to the peer-to-peer
network that currently records Bitcoin
transactions). This efficiency could add up
to a lot of saved money. The Bank of England, which has been furiously researching
blockchain technology, reported in 2016
that even partial adoption of a central-bank-issued digital currency would result
in a 3 percent increase in GDP as the cost
of taxes and transaction fees went down.
A shift away from cash would also
make it easier for governments to col-
lect taxes and enact monetary policy, says
Campbell Harvey, a professor of finance
at Duke University. For example, if a gov-
ernment wanted to disburse stimulus pay-
ments, it could simply deposit money into
people’s Fedcoin wallets. “You drop five
hundred dollars in everybody’s wallet, a
single line of code. You’re done … there’s
nothing in the mail, no mail being inter-
cepted. There’s no people trying to fraud-
ulently take the money,” he says. “It’s no
surprise that every major central bank in
the world has got a team looking at the
possibilities of moving to a blockchain-
based crypto national currency.”
Option two: Facebook sneak attack
Let’s voyage once more into the future,
but not so far this time. Because this scenario could happen tomorrow if the right
people got their acts together. This time
Bitcoin is usurped by a social-media behemoth. To make it easy, let’s choose the one
that claims to have over two billion users
worldwide.
To imagine how Facebook could use
its popularity to topple Bitcoin, look at
how another large network, Telegram,
approached the issue. In January of
this year, the company, whose secure-
messaging app has over 200 million users
worldwide, announced that it would create
its own app-specific cryptocurrency, called
Grams, that users could send each other or
use to pay for services within the network.
By February, Telegram had raised $850
million from investors by selling the cur-
rency in advance in an initial coin offering.
By late March it had raised another $850
million in a second round.
So Facebook, like Telegram, could issue
its own native currency. Or it could take the
more insidious route: adopt Bitcoin itself
and take it over.
Today, the rules of Bitcoin are enforced
by a triad of network operators: the users
who make transaction requests, the miners who process those requests and write
them into the blockchain, and the validators who watch the blockchain to make
sure everything is up to snuff. All of them
are using interoperable software, which is
what keeps them united on a single version
of the blockchain.
Any subset of these network actors can
decide at any moment to use another version of the Bitcoin software with slightly
different rules to split off from the rest and
form a parallel currency. Exactly that happened last year with the creation of Bitcoin Cash, an alternative blockchain with
slightly different specifications that allow it
to process more transactions in each block.
If Facebook could persuade a large
enough fraction of Bitcoin users and miners to run its own proprietary version of
the Bitcoin software, the company would
thereafter control the rules. It could then
refashion Bitcoin as a corporate version of
the Fedcoin described above.
But there’s an even better way that
doesn’t involve converting a bunch of true
believers: Facebook could pull off a takeover before most people even realized what
it had done. If you’re reading this, Mark,
here’s how to do it.
First, spend a month building a user-friendly, secure, Facebook-hosted Bitcoin
wallet. A Bitcoin wallet is exactly what it
sounds like—a container for your digital
currency. There are many different kinds—
some in hardware, some in software—
varying in their level of security and ease of
use. Facebook, with its vast engineering
You don’t need cash anymore,
not when you can walk into a local
bank, verify your identity, and set
up a wallet on your phone. You still
have a few dollar bills, but they are
tucked away as souvenirs.
