Indeed, the most significant factor affecting widespread It is quite possible for complementary currencies
adoption is government intervention. Governments can
to achieve widespread adoption within these
use the rule of law (backed by the threat of violence) to constraints. Indeed, loyalty programs finally found
force currencies into circulation. National governments of their stride with the development of frequent flyer
developed countries issue debt in a sovereign currency miles. Cross-border (cross-currency) transactions
and require it to be used as legal tender. Colonial
may play a similar role for cryptocurrencies.
currencies typically were brought into circulation when a coloniser compelled subsistence communities to pay land The role cryptocurrencies now play is similar to the role taxes in the sovereign currency, forcing them into the rum played during Australia’s colonial days or cigarettes coloniser’s economy and monetary system. Governments
played in the prisoner of war camps of World War II.
can also use the rule of law to prevent widespread
The Australian colonies found English currency in short adoption of non-sovereign currencies. In some instances, supply as the colonial power was at the far end of the such as happened in Wörgl, the currency is simply
world, forcing them to improvise, while prisoners of war banned once it is considered a threat to the tax base. At turned to cigarettes when they needed a means of
other times, the legal status of the complementary
settling debts. Valuable commodities such as rum and
currency
cigarettes became a means of exchanging value when
is refined so that the currency is treated as a
there was a shortage of sovereign currency.
voucher, as with the case of the Bristol Pound. In
other instances, the currency is legally considered
Cryptocurrencies may be adopted in a similar way to a
an ‘intangible asset’, a commodity rather than a
loyalty scheme or shop-issued tokens until a national
currency, forcing it to be taxed as such, which is
government agrees to accept taxes or issue debt in a
what happened with Bartercard in the early 1990s.
cryptocurrency. Complementary currencies such as rum,
cigarettes, local currencies and even loyalty schemes can It is clear that the single most significant driver-of or play an important role by providing alternative means of barrier, to widespread adoption of a currency is the
exchange and stores of value for times when a sovereign national government’s attitude to it. The government can currency is not the most appropriate tool for managing choose to ban a currency, preventing its circulation.
the relationship between two parties. This role will wax Classifying the currency as a commodity for legal
and wane depending on the circumstances. For instance, purposes hinders adoption by ensuring that all exchanges it may be more important in troubled economies, such as of value denominated in the currency attract additional in Argentina with its volatile national currency and
taxes. The government can also take a neutral stance by dysfunctional banks, where less than half the population treating the complementary currency as a foreign
uses banks, credit cards. Cryptocurrencies may play a
currency, neither hindering its use nor encouraging its smaller role in mature, stable economies such as
adoption. Finally, the government can promote, or even Australia’s.
compel, the adoption of a currency by considering it legal tender or, more strongly, by requiring citizens to use it to Few individuals, however, will accept the risk of
settle tax debts.
being paid in a stateless cryptocurrency when they
are taxed in a sovereign currency. Similarly, few
The single most powerful driver for the adoption of a
governments will choose to have tax receipts or
currency is a government’s demand that taxes or
national debt at the mercy of exchange rates with
debts be paid in the currency as this encourages (or
a stateless cryptocurrency beyond their control.
forces) firms and individuals to use it. Similarly, the most powerful inhibitor is the classification of the
complementary currency as a commodity (forcing all
exchanges to be taxed as if they are an exchange of
goods), or the outright banning of the currency.
The Future of Exchanging Value Cryptocurrencies and the trust economy 47
A means of exchange
Bitcoin is built around the idea of Bitcoin mining.
As we have just discussed, it is unlikely that Bitcoin will be Miners assemble Bitcoin transactions into blocks and
adopted across an economy. Even its many fans will
then ‘sign’ these blocks, where each transaction
readily admit that a wholesale shift to Bitcoin is unlikely.
specifies how a Bitcoin (or fraction of a Bitcoin) is to be This has resulted in a growing view that it is the block split into one or more parts, with each part distributed chain – the public ledger technology that underpins the to a new owner. Signing is the process of computing a
currency – that is the important part of Bitcoin, not the hash – a complex mathematical process that creates a
currency itself. There is significant hope that the block number associated with the block – then distributing
chain technology can create cheap and effective solutions the hash and its accompanying block of transactions
for international, inter-currency transfers and for transfers to other miners. This series of signed blocks of
between major institutions. This has the potential to
transactions forms the block chain. A transaction is
disintermediate the existing clearing houses and
accepted into Bitcoin’s distributed ledger when a block exchange services, causing significant disruption to the containing the transaction is accepted by a group of
firms involved in the current payments processes, if not to Bitcoin miners. In the short term, the miner is
the finance sector as a whole.
rewarded with a few Bitcoins. In the longer term, when the supply of unallocated Bitcoins is exhausted,
The existing system of international monetary transfers individuals will encourage miners to add transactions
is awkward, slow and expensive. This is especially true from the individual to a block by including in the
given that ubiquitous Internet connections mean
transaction a small amount of value (denominated in
commodity prices can be found, and ownership
Bitcoin) that the miners can keep.
transferred, instantly. International monetary transfers currently are done via intermediaries, take days to
As is plain, the Bitcoin currency is a key component of effect and are comparatively expensive. If we can buy
the bitcoin process as the value transferred to miners and sell stocks and commodities around the world, why
provides the incentive required for them to bundle
not transfer funds? Block chain is seen as a solution to transactions into blocks and sign them. Without this
this problem as it would enable the creation of a
bundling and signing, the bitcoin process won’t work.
distributed, peer-to-peer solution that would remove
Bitcoin’s promise of near-instant transfers of value
intermediaries. The result would be cheap and speedy
is possible only if there are enough miners to
transfers of funds that reduce risks by narrowing
ensure transactions are picked up promptly and
exchange spreads, credit risk and collateral costs.
bundled into blocks.
The challenge is that cryptocurrency and protocol are not easily separable. Put another way, it is not possible to separate the currency (Bitcoin) from the technology (bitcoin, the block chain) as they rely on each other.
As initially conceived, the currency is a key
technology in the overall Bitcoin solution.