I have been hearing a lot of buzz about the government introducing a “digital dollar”. But isn’t most money already digital? What would be the big difference in this system?
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So many people in this thread getting it wrong…
There is significant difference between electronic MONEY used by banks, and electronic CASH of the type created by Blockchains, Bitcoin & Cryptocurrencies.
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Blockchains are not simply p2p money records and lots of copies, they are different types of data records.
Not that its stored in a fancy type of database, or is built in a fancy way, but at the very end, the data you end up with represents something different.
The number $1 in a blockchain is different from $1 in a more traditional database.
Data kept in Blockchains is more accurate and is of higher quality,
In quite an unusual sense, that many people skip right over or misunderstand.
With Blockchains, the data record has much higher guarantees of being in the correct order, and not being proceeded by any other unknown and yet to be sync’ed transactions.
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This is really important because it allows something new to happen with money data:
The inability to spend money you don’t have in the first place.
No other digital representation of money can do this.
Since they do not provide the same level of time correctness. Which allows for a de-sync’s in data.
Sometimes called the double spending problem.
Yet, not being able to spend money you don’t own is a default when using cash.
I can’t hand you $5 I don’t own.
I can’t hand you a gold bar I don’t own.
You can’t overdraft a dollar bill from your pocket
But with data, it is easy to lie.
I can very easily write a multiple checks for more money than I have.
It’s very easy for computer servers to be slightly out of sync and authorize transactions that overdraft an account.
Or if operated by random internet trolls, completely lie about how much money they have to send you.
Even if later on a time stamp can be used to correctly order txns, only when all the transactions are collected can one know you went over and “double spent”.
(Sometimes overdrafts are allowed through even if they know the correct balance, and the bank knows it would overdraft, but that’s a different scenario. The possibility for a de-sync, and the inability to prevent overdrafting 100% of the time is the important part)
Because of this, huge real life mechanisms like identity tracking, and debt collection systems, often involving legal and policing methods, are needed to ensure you don’t abandon accounts and open new ones, and do in fact pay off any debts incurred. Which ends up costing tons of money to enforce, and often fails.
Crypto prevents all of this, by ensuring that you never spend money you didn’t have in the first place.
In essence, allowing a number, on its own, without any real life enforcement, to function the same as cash.
If you want to know more about how this works, google Nakamoto consensus(the real name of the Bitcoin algorithm, not proof of work) & how a Blockchain achieves finality and dumps/prunes invalid or doubly spent transactions.
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SO that was a lot to throw at you. Hopefully enough to ELI5, but anywho…
There is quite a bit of interest in the government building a fully endorsed version of the dollar that works in this manner.
Since it would drastically reduce costs of banking infrastructure and allow the government to enforce rules, laws and sanctions that other fully decentralized cryptocurrencies like Bitcoin and most others ignore. It also might prevent a non-USD currency from overtaking the USD dollar as a primary world currency, which would probably be bad for the US economy.
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There is one other really interesting angle to this, where the data in a blockchain has no root admin. Even though the data is not on your computer, no one can edit it except you. (* Or If a majority of miners change the rules for some weird reason).
This is a brand new concept in the entire field of computing.
Banks can and will freeze or delete you account if they are forced to, or had business reasons to do so. Their computers and their IT people have that power. But with Bitcoin and many other crypto’s that’s not possible, by anyone. You truly control and own the data in a way never before possible.
Electronic cash in only your pocket.
But there is a big chance this would get walked back by a government made crypto currency so they can kick people off for breaking the law or whatever.
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Source: I’m a professional software dev who has been coding for over 10 years, and has fallen down the crypto rabbit hole. Very fascinating stuff. Highly recommend dodging the terrible public narratives, all the get rich quick schemes and learning more about the crazy awesome tech!
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