National Digital Currencies Are Not Cryptocurrencies: Peter Todd at Genesis London
Over the past few months, several countries including Iran, Venezuela, and China have either announced their plans to launch national cryptocurrencies or already conducted initial coin offerings (ICOs) to introduce a state-backed digital currency.
In late February, Venezuelan president Nicolas Maduro claimed that Petro, the oil-backed cryptocurrency operated by the country’s government, raised $735 million from investors. A few weeks later, in an interview with a local mainstream media outlet Telesur, President Maduro stated that Petro generated $5 billion from 186,000 certified purchases.
Inspired by the success of Venezuela’s Petro ICO, the Iranian government, which is currently dealing with heavy international sanctions, revealed that it has begun the development of a cloud-backed cryptocurrency. Iranian Information and Communications Technology Minister MJ Azari Jahromi said that the country will “implement the country’s first cloud-based digital currency using the capacity of the country’s elite.”
However, all national cryptocurrencies including Petro and the digital currency of Iran, are not decentralized by nature unlike public blockchains and cryptocurrencies like bitcoin. Vitalik Buterin, the creator of Ethereum, previously expressed his concerns in regards to the centralization in ICOs, which are launched on top of a decentralized blockchain in Ethereum.
“I think many of these flaws arise from the fact that even though the ICOs are happening on a decentralized platform, the ICOs themselves are hardly centralized; they inherently involve many people trusting a single development team with potentially over $200 million of funding,” Buterin said in an interview with South Korean mainstream media outlet JoongAng.
Hence, even the Venezuelan Petro, which is supposedly an ERC 20 token launched on top of the Ethereum protocol, is centralized to a certain extent.
At the Genesis London conference held in the UK, bitcoin developer and applied cryptography consultant Peter Todd stated:
“Basically all currencies are digital currencies — the ultimate ledger of truth in currency systems is nearly always digital. Maybe some terrible backwards country like North Korea might be keeping it all on paper but if you go to most places in the world, it’s going to be digital records. So most places have digital currencies already. Equally, most places you can transfer money digitally. Cryptocurrency is not about being able to move money digitally, it’s about auditing. In the case of decentralised cryptocurrency, it’s about the ability to move money and audit it without permission. But when you’re talking about a government currency, obviously there’s permission, a central authority and control — end of story.”
Public blockchains or cryptocurrencies can be easily audited, primarily because transaction data and financial information are stored on a public ledger that can be accessed transparently by anyone within the network.
As such, while national digital currencies are branded as cryptocurrencies and decentralized networks, structurally and fundamentally, they do not have any significant difference with existing systems based on fiat currency.
“So the cryptocurrency part of it is about giving people better ability to audit what happened, audit what the supply is and audit what the transactions are. I think, in reality, a lot places don’t really care about that. Does even the government of Canada care about giving people the ability to audit the money supply? Probably not as much as you’d think,” Todd explained.