The Regulatory Challenge of Digital Money - Evolution, not a Revolution!

The Prevailing Strategy calls for a comprehensive regulatory design, then challenge technology to fit in. Why it is wrong headed!

The people in charge of national money today are the ones planning the switch to digital money tomorrow, and they do so with the mindset that claims: regulatory challenges must be resolved first, while being agnostic about the technology. When financial planners are done, then the best technology will be selected.

This writing argues the opposite.

Nobody predicted that a cryptocurrency traders did not understand, and that was backed by nothing, will actually write a dramatic record of growth and sustainability -- bitcoin. Indeed, even very smart and astute financial planners cannot predict the behavior of the trading public in response to any regulatory construction. The idea of coming up with a perfect set of rules for privacy, for resilience, for value control and then satisfy these rules with a compliant technology, is overly ambitious. It is hubris to believe that the behavior of the trading public can be credibly predicted. Every currency, every form of money runs the inherent risk of being shunned, of being refused as payment -- of not catching on. The humility approach calls for experimental track. Set up a digital money regulatory framework, apply it in a limited way over a restricted community of traders; let it run, study behavior and decide on what to do next based on the lessons from competing options.

Financial planners should select a choice set of digital money designs -- technology wise -- that satisfy basic requirements, and then let these design options compete by letting them run in parallel, each in a fenced-up environment where crowed behavior, security, convenience, efficiency etc. are carefully monitored.

First of all a digital money technology must be quantum proof. It makes absolutely  no sense to consider a future with a digital money technology that will be crashed by the oncoming quantum computers. To say that the quantum threat is years away, is whistling in the graveyard. Just last week two major quantum advancements have been published, dramatically accelerating the timeline towards total compromise of bitcoin and the hundreds of digital coins that all rely on the unproven lock known as the elliptic curve algorithm.

Next to quantum threat resilience, the considered digital money will need to offer privacy level adjustment PLA. Eventually the regulators will come up with a formula wherein privacy is strong for small transactions and privacy is court-challenged for large transactions. The digital money in use will have to offer the power to implement any regulatory demand regarding privacy.

Lastly, any digital money technology that warrants consideration should offer a contact trade option: ensuring payment continuity even under conditions when the internet is down for a prolonged period of time, because whether by terrorism or by natural disaster, the Internet will be a no-show in the foreseeable future, but payment cannot be stopped. The cash equivalent of physically-direct local payment must be part and parcel of any digital money technology that deserves serious consideration by financial planners.

This then is a call to high level financial planners. Don't go the route of a comprehensive regulatory framework design first, and then search for a compliant technology. Pick a few promising technology options for digital money, and commission several competing trials over a restricted cut of the general public; study public behavior, experience the technology, and move forward, one step at a time.

Evolution not a revolution.