The Bitcoin founders did it, and China's doing it. Where is the USD global digital currency?

The Feds, IRS, and Wall Street won’t like it, nor will the BTC Heads. But the US must offer a digital US dollar ASAP or else lose its status as the most stable and traded currency in the world.

Close-up of Simon Denny's Centralization vs Decentralization hardware display.

When you ask the average Josephine in the US, she will tell you that deep in her heart, the US dollar feels like funny money. The average Joe would agree, as well, because watching the US Treasury print money to cover our massive $33 trillion national debt with no end in sight seems like a classic house of cards trick that always has the same ending—total collapse. The rise and relative stability of Bitcoin over the last 15 years, whether a bright idea or not, has proven to be a hedge against this collapse for many people. Currently, BTC investors are in 'long-hold' mode, which we think is an important indicator.

The global money-changers might think that Satoshi and his Bitcoin followers are on shaky ground. Still, the emperors' and courtiers' $300 trillion tower of global debt [$37,500 per person in the world—$33 trillion in the US] is beginning to teeter, and their fortunes are doomed to go down with it. The creativity in crypto is preparing a new financial system for the moment the fiat currency pinata bursts at last."

—George Gilder, economist, futurist, and author, Life After Capitalism, 2023; Life After Google, 2018; and Wealth & Poverty, 1981.

At Cryptonite, we are neither economists nor experts in monetary policy. Still, we, too, have deep concerns like all the Josephines and Joes, and our entrepreneurial instinct is to conspire to fix the problem. In this thought piece, we propose two initiatives to strengthen and restore faith in the US dollar, successfully compete with the yuan, and allow us to live more simply and privately: 

• Begin replacing physical currency by minting digital US dollars that any person with a crypto wallet can instantly buy, trade for, sell, or privately own and store.

• Return the US dollar to the gold-backed currency standard to remain competitive with Bitcoin and other government-issued and private-market cryptocurrencies.

The most important of these two initiatives is minting the digital US dollar because this is where the world is going, and if we lag on this, we will lose. These are two complex issues that the innovation community urgently needs to address in particular because others look to us for informed opinions on geek issues. What is blockchain? Could people steal my USD token? Is this a Big Brother Move? We are responsible for leading the way into Web3 and inspiring all its possibilities to bring power back to the individual and away from the ancient institutions we no longer trust. 

Bonfire of the Vanities redux

The Wall Street money-changing honchos embedded at the US Treasury are in full-on passive-aggressive mode. They are trying to hold onto their money and power with the edge of their fingernails. These fine folks have spent their whole careers standing in the middle of transactions, paying themselves usurious fees 10x+ the annual salaries of the CEOs they represent to make a few investor calls. The biggest business in the world today is the $7 trillion a day currency trading, one dominated by the eleven largest banks. 

Bitcoin, CBCDs, and the blockchain are the biggest threats to money institutions. Hence the slow-walking. But it's a lost cause. The decentralization movement driving Web3 innovation will drive the broker-dealer business into extinction. Rather than champion innovation efficiency and broader distribution of wealth, the US government is conspicuously absent from the cryptocurrency table to our peril.

Sherman McCoy (played by Tom Hanks) is a big-time Wall Street trader and considers himself one of the Masters of the Universe in the 1990 film The Bonfire of the Vanities.

In the rest of the world, central bank-backed digital currencies (CBDCs) are no longer an esoteric proposition only understood by blockheads—It's Game F*cking On! CBDC represents a digital form of a country's fiat currency available to the general public with the same claim on the central bank (digital liability) as physical currencies. As of January 2023, the central banks of 130 countries, representing 98 percent of global GDP, were considering launching a CBDC—up from 35 countries in May 2020. 

Eleven countries have fully launched digital currencies, with India and Brazil committed to doing the same in 2024. In addition, 64 countries are in advanced phases of exploration—development, pilot, or launch. Nineteen G20 countries are already conducting pilots, including Australia and Russia.

It's disturbing to witness all this blockchain innovation happening while we are sitting on our hands at home. The best the US can do is release a discussion paper that examines 'the pros and cons of a potential US CBDC.' The Federal Reserve says their 'key focus is whether and how a CBDC could improve an already safe and efficient US domestic payments system.' Jeepers creepers, can someone drag these people out of their caves? 

Our competitive advantage is we breed clever people who move fast. It's shocking this innovation lethargy exists despite the fact G7 banks, notably the Bank of England and the Bank of Japan, are developing CBDC prototypes, and the European Central Bank has publicly committed to issuing a CBDC this decade. If all the posers at Treasury and the current administration officials don't start getting serious about a digital USD, the US will become isolated and diminished in the global economy.

Visit the Atlantic Council's Central Bank Digital Currency Tracker for every nation's most up-to-date CBDC moves.  

The Chinese Communist Party’s e-CNY and crypto wallet—The leading digital token issued by a global central bank to date.

We haven't even started discussing what's up with our most powerful economic challenger, the Chinese Communist Party (CCP). President Xi green-lit the digital yuan to be ready for testing at the Beijing 2022 Winter Olympic Games. By January 2022, the CCP-controlled People's Bank of China launched the digital yuan (e-CNY, as they call it) and crypto wallet on the Apple and Google app stores in China in a pilot program for 260 million Chinese citizens. 

The e-CNY is linked to the legacy yuan in value and serves as a centralized payment system. They are testing the digital yuan in over 200 domestic payment scenarios, including public transit, stimulus payments, and e-commerce, to determine how well the e-CNY can assimilate within its domestic financial system.

Governor of the Peoples Bank of China, Yi Gang, says digital yuan transactions are going up, up, up! Fluent in English, Yi gained his Ph.D. in Economics from the University of Illinois Urbana–Champaign and taught at Purdue University, his ‘second home,’ until he returned to China in 1994.

China's digital yuan transactions hit 1.8 trillion yuan ($250 billion) by the end of June 2023, reported the country's central bank governor Yi Gang, marking a jump from over 100 billion yuan as of August last year. These numbers solidify China's position as the leader in digital tokens issued by a central bank. The e-CNYs in circulation still only account for 0.16% of China's M0 money supply, but the CCP shows no signs of slowing down the minting. "Right now, the balance of e-CNY is tiny, but this small balance supported a big number of transactions, which means that the velocity of digital currencies is significantly higher and more efficient," Mr. Yi said.

The two heads of the Chinese dragon

The CCP continues to use Hong Kong to balancee its act as a totalitarian regime with capitalistic desires. In June 2019, Beijing banned crypto trading and blocked access to all forms of cryptocurrency exchanges, domestic and foreign, and Initial Coin Offering websites on the mainland. The CCP is also aggressively developing blockchain monetary technology that provides greater control to the CCP over its citizens. Yet through its 'special administrative region' a.k.a. Hong Kong, the CCP has a seat at the table of the free-wheeling global markets for digital assets at an equal level as any other international financial hub.

Meet the two Chinese dragon heads, Beijing and HK.

In July, for example, the majority state-owned Bank of China, headquartered in Beijing, successfully issued $28 million of debt on the Ethereum blockchain and took advantage of its lower fees and 24/7 settlement power. In another example, despite being denominated in US dollars, the world's most popular stablecoin, Tether, is owned by a Hong Kong-based company.

More significantly (and ironically), the Financial Times reported that Hong Kong regulators are pushing large banks in the region to provide banking services to crypto exchanges, 'inverting a dynamic in the US where many banks are reluctant to take on crypto clients because of the industry's unsettled legal status.' Hong Kong's largest bank, HSBC, has also begun offering clients access to Bitcoin and Ethereum ETFs. 

In essence, Hong Kong allows the CCP to command centralized monetary and financial controls and track their citizens on the mainland while reducing capital flight risk by still betting on the potential of global crypto networks to disrupt money and finance.

While China continues to pioneer digital currency development, the US has yet to pilot a digital dollar. China is also actively engaging with other countries and international organizations to begin shaping global standards for the future of money. The US is at significant risk of losing its economic leverage and global financial power as Beijing continues to dictate the norms and regulations of digital currencies. The CCP's dubious sales pitch is that the e-CNY can contribute to financial inclusion and financial stability worldwide. How is this not our pitch for the digital USD?

Key CBDC benefits

A few of the most evident benefits of launching a US CBDC for the general global public would include the following:

Instant, 24/7, cheap transactions: The Peoples Bank of China has already proven how digital currencies bring velocity, liquidity, and operational efficiency to the retail payment world, as Governor Yi Gang articulated.

Portable, convenient, and germ-free: Allows people to pay in 'cash' without handling and exchanging physical currency or needing a physical wallet or purse, which is more convenient, safer, and sanitary.

Promotes broader distribution and accessibility of wealth: Digital currencies bring modern banking and cash payment features to the 1.6 billion underbanked population. Including safer access to money, a place to store and track cash, and a peer-to-peer electronic payment and tracking system.

With instant access to the most stable digital currencies in the world at a tiny transaction cost, these same regions should experience the highest economic growth rates over the next 30 years.

Guard against inflation-sensitive currencies: If you live in a high inflation rate country where you lose money just holding it, such as Venezuela (1,198%), Lebanon (201%), Argentina (51%), or Turkey (36%), you would be thrilled to swap out your home currency for a penny on the dollar fee for a digital USD. As a liability of the Federal Reserve, a digital USD would be the safest digital asset available to the general public, with no associated credit or liquidity risk. The goal behind the digital yuan is to own this market position.

Solves government fraud and distribution inefficiency: COVID taught us many important lessons, including how desperately we need to upgrade our government financial systems. Now considered the largest fraud in US history, the theft of somewhere between $180 billion to $400 billion in taxpayer money from Covid relief programs, with at least half taken by international fraudsters, is enough evidence the US needs to go crypto. It is now entirely possible for everyone to register for a US government digital wallet that would validate their US citizen via a blockchain-based authentication system and manage any government relief, social security, medical, or IRS payments, 24/7, with complete cryptographic privacy and security.

CBDC launch challenges and risks

Countries must carefully plan for the risks involved in launching a CBDC. 

Run on banks: Citizens could embrace the idea of controlling and managing their digital money so enthusiastically that it might trigger a run on the banks. Given the recent run on deposits at Silicon Valley Bank (now First Citizens Bank) and First Republic Bank (now JPMorgan Chase), this scenario is easy to imagine, especially in countries with inflationary currencies and unstable financial systems. 

Cyber security and privacy: All CBDCs could be implemented on a private blockchain utilizing advanced cryptographic techniques to secure transactions but still maintain control over the minting and distribution of the currencies. This way, CBDCs are less vulnerable to cyber-attack and privacy issues than current commercial cloud computing-based networks. Bitcoin's design has proven highly secure and resilient against any cyber-attacks, with no successful breaches on its underlying protocol since its inception in 2009.`

"The root problem with conventional currency is all the trust required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust."

— 'Satoshi Nakamoto,' Creator, Bitcoin & Blockchain

Central banks always disappoint: By definition, all CBDCs are still minted and put into circulation by centralized government-run banks. The BTC Heads will argue that history shows centrally controlled currencies are ultimately manipulated and corrupted in one form or another, and a CBDC US dollar would be no exception. 

Artisanal gold mining in Costa Rica is mainly practiced around Abangares, Guanacaste, regarded as the cultural and historical backbone of the community's existence. The mural of the gold prospectors of the mid-1800s is displayed at the bus station in Abangares, Cost Rica.

Gold and Bitcoin are real money because time is money

In addition to offering a CBDC, the US dollar needs to be a currency outside the political and global financial system. As economist George Gilder observes in his new book, Life After Capitalism, 'Our money has become a magic wand for central banks, fuels the currency trader manipulation, and causes constant global monetary crises.' Right now, we measure money by the price of commodities and commodities by money, so fiat currencies live in this circular money-changer system that's been building the house of cards we are all so jittery about. 

"'Real money' is a measuring stick, a metric of value, reflecting the scarcity and irreversible passage of time—entropy-based, equally distributed, and founded on the physical limits of the speed of light and the span of life. Bitcoin and gold are both real money in this sense. Government monopoly money is not.”

—George Gilder, economist, futurist, and author, Life After Capitalism, 2023; Life After Google, 2018

Until Bitcoin, only one currency in history has been valued outside the system: gold. Gold is outside the system because its value was, and still is, based on the time it takes to extract it from the earth. Interestingly, gold is the one element that takes the same amount of time today to mine as it did a thousand years ago, which makes it peculiarly monetary by nature.

Bitcoin is very similar to gold. There is only so much gold in the world, and the Bitcoin blockchain is programmed only to allow the creation of 2.1 million coins. Both gold and bitcoin have to be 'mined,' which requires a prospector's time and money. Today it costs miners (computer time + electricity) at least $17,000 to produce one BTC in the US versus $5,000–10,000 last year.

A 1949 $20 US dollar gold coin (90% gold, 10% copper) from the National Numismatic Collection at the Smithsonian Institution is valued at over $22 million today.

Economists today are developing new ways to determine 'time prices' by measuring the time people need to work to buy something. Mr. Gilder believes that to establish real value, future currencies must consider the new time theory and price equations. 'Time is finite, immutable, and equally distributed to all of us. Bitcoin and gold are both real money in this sense. Government monopoly money is not,' he says. Another spin on this is when the government prints money, it lowers the value (i.e., robs us) of our time.

As we move into the Web3 era, when tradable assets will be tokenized and more easily tradeable and used for payments, our US dollar, based upon a promise and a prayer, will be perceived as much less valuable to hold. One of the big questions raised after the Silicon Valley Bank collapse was, 'Why would you leave more than $250,000 in cash in any one bank, since anything above that is not insured, and the bank's not paying you for that risk?"

Uncle George spreading the blockchain gospel.

Our gut says George is right. Wealth is knowledge, whether knowing how to fix a pipe, test DNA or write a film script. And wealth creation takes time—because its equation is learning plus execution. As Stanford economist Thomas Sowell reminds us, the Stone Age Neanderthals had all the natural resources we have today, but the growth of knowledge brought us out of the cave. So time is money. 

Time-based currency measures are also the fairest because they all have the same time stamp and are applied equally in every country. This helps obviate all inflation measures, purchasing power parities, currency trading, and manipulation. 

As we move into the Web3 era, when most all tradable assets will be tokenized and more easily tradeable and used for payments, our US dollar, based upon a promise and a prayer, will be perceived as much less valuable to hold. One of the big questions raised after the Silicon Valley Bank collapse was, ‘Why would you leave more than $250,000 in cash in any one bank, since anything above that is not insured, and the bank’s not paying you for that risk?”

For the US dollar to keep its shiny value, we must return to back the gold standard, the strongest currency model a central bank could offer. If we do not, the US dollar's value and power will decline compared to BTC and the ensuing onslaught of tokenized 'real world assets' with more measurable value and liquid enough to compete in the payments world at various levels.

The venerable Wall Street research and brokerage firm Bernstein estimates that the tokenization opportunity could be as much as $5 trillion over the next five years, led by stablecoins and CBDCs, private market funds, securities, and real estate. These tokenized assets, coupled with yield farming in decentralized markets, will undoubtedly compete with bank deposits as an investment or saving instrument.

The gold standard also brings discipline to monetary policy and prevents excessive money creation by governments, which leads to inflation and devaluation of the currency. A gold-backed currency limits government spending and fosters a more stable economic environment for investment and entrepreneurship.

Going for the Gold! (not)

The US Dollar is the most traded currency in the world. Almost every central and commercial bank holds it as their primary reserve currency. Since World War I, the strength of the USD has increased exponentially alongside the rise in US economic and political power.

Until 1971, the U.S. dollar was backed by a fixed amount of gold held in reserve by the US Treasury and central bank equal to the amount of currency in circulation. Under the gold standard, the US government would redeem dollars for a specific amount of gold upon request equal to the amount of currency in circulation. This link between the USD and gold generally provided economic stability, limited inflation, and promoted long-term economic growth.

President Richard Nixon delivers the shock to the world that Washington would no longer redeem US dollars for gold. Circa 1971.

On August 15, 1971, then-President Richard Nixon announced that the US officially went off the gold standard (the ‘Nixon Shock’). President Nixon blamed the need to suspend the dollar's convertibility into gold on economic challenges, including inflation and a growing trade deficit, which put increasing pressure on our gold reserves.

After the abandonment of the gold standard, the U.S. dollar became a fiat currency, meaning its value was no longer tied to a physical commodity like gold but was based on the government's declaration of its value as legal tender and the perceived power of the US in the global political landscape.

This controversial shift towards a looser global monetary system has led to new challenges in managing currency values and inflation, and was the impetus behind the creation of Bitcoin, and continues to inspire the broader altcoin movement.

Alec Monopoly Street Art, Miami, Florida

Flipping the tables on the CCP, the Feds and the money changers

The US can remain in denial, but the rest of the world is going CBDC, with the CCP holding the winning token so far. This is an urgent matter for the US and the rest of the world. The CCP’s e-CNY plans, different from all other countries, are to program their CBDCs so they have all the ‘who has them and where’ data. They aim to spread the e-CNY and wallet and become the currency of choice for the developing and unbanked world and beyond. Digital coins make it easy and cheap for people who live in a high inflation rate country to swap out their home currency instantly for an e-CNY for more financial security. Get the picture?

In a bold move, El Salvador's President Nayib Bukele made Bitcoin legal tender in El Salvador’s dollarized economy—The first country in the world to do so. Unfortunately, it was at the top of the crypto bubble in 2021 and has been the most unpopular measure of his government.

The US is starving for digital currency leadership. How US Presidents lead and policy-makers regulate blockchain-based businesses will determine how quickly we will see a US CBDC and tokenized real-world assets. To date, not a single presidential candidate is backing a US CBDC. Crypto companies have been calling for more regulatory clarity for months, but they have been too busy chasing down Ripple and Binance. The chasm between the real world of innovation and Washington DC, whether in blockchain technology or AI, has never been greater.

Bitcoin and the Bully Pulpit

Biden Administration: 'There are no plans to convert the US dollar into a digital asset,' White House Assistant Press Secretary Robyn Patterson told Reuters on July 14. Otherwise, the Biden SEC has been trying to crack down on Crypto companies, recently suffering a partial loss in its fight with Ripple when the US District Court of New York ruled last month that the sale of Ripple's XRP tokens on exchanges and through algorithms did not constitute investment contracts and therefore are not securities. Otherwise, Uncle Joe has never uttered the word Bitcoin in public.

The joke's on Joe. President Biden inadvertently becomes Bitcoin's latest brand ambassador in his new cringe Cup of Joereelection campaign video. The crypto social community quickly picked up on the glowing red "laser eyes" on Joe's mug, which mimes what BTC enthusiasts like Tom Brady often don in their online profile photos.

President Joe Biden inadvertently becomes Bitcoin's latest brand ambassador in his new cringe Cup of Joe reelection campaign video. The Bitcoin and crypto social community quickly picked up on the glowing red "laser eyes" on Joe's mug, miming what BTC enthusiasts like Tom Brady often don in their online profile photos.

Donald Trump: President Trump told Fox Business that he sees Bitcoin as a 'scam' affecting the value of the US dollar. 'I don't like it because it's another currency competing against the dollar,' and added he wanted the dollar to be "THE currency of the world.'

Ron DeSantis: Governor DeSantis of Florida stated that, unlike Biden, his administration would enable Americans to invest in the primary cryptocurrency and the alternative coins. 'Biden's war on Bitcoin and cryptocurrency will end when I become President.' Yet he also reiterated his hostile stance toward central bank digital currencies, saying such a financial product will not see the light of day if he gets elected.

RFK, Jr.: Bobby Kennedy, Jr. says, 'Biden's proposed 30% tax on cryptocurrency mining is a bad idea and drives innovation elsewhere.' He unveiled a plan to exempt BTC from capital gains tax when converted into US dollars and back the greenback with 'real finite assets such as gold, silver, platinum, and bitcoin. In an interview with The New York Post, he said he opposes central bank digital currencies because they are 'instruments of control and oppression, and are certain to be abused.' On the gold standard he stated recently, "Backing dollars and US debt obligations with hard assets, such as gold, silver, platinum, and bitcoin, could help restore the dollar’s strength, rein in inflation, and usher in a new era of American financial stability, peace, and prosperity."

—Robert F. Kennedy, Jr, Democratic candidate for US President 2024

Note: The Internal Revenue Service treats Bitcoin as property and investment rather than currency, which means it is subject to tax on capital gains.

The elephant in the crypto casino is that a true CBDC would be like holding a C note in your leather wallet—or lots of C notes under your mattress—your money would be off-grid with no governmental scrutiny. And with all these shiny new US-backed tokens in your digital wallet no one knows about, why wouldn't people conduct business as much as possible off the grid to save taxes? Unless we choose the CCP e-CNY data-tracking route, we will have to move to a more trust-based tax system.

Politicians do not like a CBDC because it represents a loss of political power and control. We have also gotten to the point where the government acts like it doesn't trust the people, so the people no longer trust the government. The US Congress trust rate, according to a recent Gallup poll, is 7 percent—the least trusted institution in the US!

Meanwhile, the global Silicon Valley steams ahead. In the last four years, venture capitalists and late-stage investors plowed $320 billion into over 10,000 private Web3 companies. The AI sector took in $250 billion (78 percent) of the cash, $57 billion (18 percent) went to blockchain/crypto companies, and $15 billion (4.5 percent) to the Metaverse/VR sector.

As George Gilder says, the blockchain-based ground state for a new economic architecture is in acceleration mode. The tokenization of assets and decentralized finance of DeFi, are bringing back the gold metaphor that 'time is money’ as the value measure. The move towards a hard asset-based US currency will take more evangelizing, but as our politicians stand frozen, innovation is making them irrelevant.

A theme here is for a currency to be legit, its value must have a relationship with knowledge and time and be outside the political and global financial system. Maybe even a gold-backed US CBDC is still trying to jam a square peg in a round hole. Maybe we should just say fuck it and move to Bitcoin and other tradable real-world assets and keep low USD personal reserves. Maybe we should all give up and learn Chinese. Thank God global Silicon Valley entrepreneurs will never let that happen because decentralization of power and privacy is on our minds.

Special shout-out to dear bro and Cryptonite launch partner David Kunin for inspiring this thought piece.

---