NEW YORK (InsideBitcoins) — Bitcoin is an astounding advancement in currency and payment technologies, which means it should not be long until governments begin to adopt these technological improvements in their own monetary systems. Although governments will undoubtedly have some issues with bitcoin in its current form, it’s likely that they will take certain aspects of the tech to improve their own fiat currencies.

While governments usually compete on the stability of their currencies (and economies), it’s possible that the technologies used to implement these new, digital currencies could be an extra battleground.

The benefits of cryptocurrency over current fiat currency tech

So, why would a government want to adopt certain aspects of bitcoin and ecash technologies? There are actually quite a few reasons to look at here, but none of them have much to do with the core reasons people are opting into the bitcoin system today.

Digital bitcoinLet’s take a look at some of the improvements that can be made to fiat currency by shifting towards digital cash:

  1. Digital cash cannot be counterfeited. By choosing digital cash over physical notes, a governing body can protect the integrity of their currency. Although identifying and destroying counterfeit currency has become easier over the years, the reality is that fake dollars, euros, yen, yuan, and other monetary notes continue to pop up from time to time.
  2. Digital cash makes sense for frictionless payments. Credit and debit cards have made spending fiat currency more convenient, but it’s also increased expenses for merchants. A government that created their own digital currency with a centralized block chain would be able to provide free, frictionless payments between holders of that new version of digital fiat currency. In other words, consumers are provided the convenience of mobile payments, while merchants do not have to worry about increased costs (and possible chargebacks).
  3. Getting rid of anonymous transactions in the form of physical cash. Nearly all governments have made it clear that, much like MasterCard, they are not fans of anonymity. Many countries already have restrictions on cash transactions, and various government agencies would love the prospect of having every transaction collected in a centralized database.

The drawbacks of government-issued cryptocurrency

Some have argued that a government transition into digital currency would mean the end of bitcoin, but there are still plenty of advantages of the private, decentralized cryptocurrency over anything a government entity is likely to create. Here are some of the main reasons bitcoin will still compete favorably with government-issued digital currencies:

  1. Government-issued digital currencies will be tools of mass financial surveillance. When governments make the transition to digital currency, you can be sure that anonymity will not be part of the sales pitch. This means bitcoin still holds onto its core value of censorship resistance when compared to all other currencies. There will always be a market for people who do not wish to have all of their financial activity tracked by governments and other third-party institutions. The crackdown on physical cash transactions by governments could actually increase the number of use cases for bitcoin.
  2. Trust is placed in government rather than code. As we are currently seeing in Venezuela, Argentina, and many other countries around the world, the issuance of new units of fiat currency is one of the main problems with government control over a monetary system. Unless a government is willing to take a hands-off approach to the creation of new currency units, the government-issued currency would be at a competitive advantage to the math-based issuance model in bitcoin. Governments who want to take the responsibility of currency issuance out of their own hands could look to bitcoin as a potential reserve currency.
  3. Government-issued currencies are limited by geographic regions. One last point to remember in this increasingly global economy is that fiat currencies are limited by their geographic regions. People in the Eurozone want euros, and people in the United States want dollars. This causes unnecessary friction and increased costs in international payments and money transfers. On the other hand, bitcoin is an international currency with no borders.

The movement of governments towards digital currency is not completely theoretical, as relevant plans are already on the table in Ecuador and the Philippines. We’ll continue to track the transition of traditional fiat into digital currency here at Inside Bitcoins.

You can follow @kyletorpey on Twitter.

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