Instead of Fighting Bitcoin, the US Could Make Its Own Digital Currency

The US government has been seriously studying bitcoin for about two years now. The FBI knows how to seize the digital currency. The Marshals Service knows how to sell it. The IRS knows how to tax it. And now, the Federal Reserve should copy it.

So says James Angel, a professor of economics at Georgetown University. He thinks the government should create what he calls bitdollar, a bitcoin-like digital currency thats backed by the US dollar.

Yes, many believe the whole point of bitcoin is to separate money from the governments of the world. But bitcoin also seeks to create an open payment network anyone can use without jumping through the hoops that encumber, say, credit card or international money transfer networks, and Angel thinks the government can help accomplish such a thing. He is among those who believe the really powerful idea is bitcoin as a payment system, rather than bitcoin as a currency.

I think Janet Yellen ought to get out in front of this.

A bitdollar would help bring the idea of an open payment network to maturity, he says, and because it would be backed by the dollar, it could bring new life to foreign countries struggling for economic stability, such as Venezuela, by giving them a stable digital currency. I think Janet Yellen ought to get out in front of this, Angel says, referring to the head of the Federal Reserve, to basically put some competition into the payment space.

Angel isnt alone in exploring a merger between government and bitcoin. The worlds governments already are looking for ways to regulate bitcoin. And the Canadian government has explored its very own digital currency, MintChip, which is something akin to Angels proposal.

The Canadians eventually shelved their MintChip dreams, but the rise of digital currencies seems inevitable. In some shape or form, the governments of the world must learn to accommodate them. Indeed, just last month, the Bank of Canada said a Canadian digital currency might be back on the table.

Like bitcoin, Angels bitdollar would run across a vast network of computers, and it would use a public ledger akin to bitcoins blockchainmeaning all transactions would be recorded online for all the see. But it would differ from bitcoin in how it encourages people to set up the machines needed to run this massive system. Rather than just paying them in newly minted bitdollars, it would give them a small cut of every transaction that happens on the network. And it would be backed by the greenback, which would eliminate some of the seesaw volatility that has spooked some would-be bitcoin users.

These arent huge changes. But the very idea of a government-backed digital currency is sure to horrify the bitcoin faithful. One of bitcoins central premises is that its a deflationary currencyonly about 21 million bitcoins will ever be createdand Angels Fed-backed bitdollar wouldnt have the same kind of restriction. One of the most important characteristics of bitcoin is the limited supply, says Roger Ver, a well-known bitcoin entrepreneur and evangelist. If the supply is unlimited, it isnt nearly as interesting.

One of the most important characteristics of bitcoin is the limited supply.

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Instead of Fighting Bitcoin, the US Could Make Its Own Digital Currency