Tech anarchists, National Banks and private enterprises. Stable cryptocurrencies based on dollars or crowns are taking shape on several fronts, but who are pushing ahead in the race of issuing a national cryptocurrency?

In the wake of the financial crisis, the launch of Bitcoin was a digitalised and decentralised message for the whole economic establishment. A message not to be ignored. Tech anarchists wanted to transform the financial world, remove intermediaries, and give the power back to the people.

On a small volcanic island far north, which, in the years before had been well on the way to acquire large parts of the Danish business community, the 2008 financial crisis hit particularly hard. The debt was huge and the Icelandic national currency, ‘króna’, hit an all-time low on financial markets. And the ones to pay the price became the population, not the companies and wealthy, who had brought the financial burden to the verge of economic collapse.

The Bitcoin mutation, Auroracoin, was the message to reform the financial market. It was distributed free to everyone with Icelandic social security. The first attempt at a national cryptocurrency was born. But never really took off.

Since then, the anti-establishment movement became more mainstream and reached far into the Nordic national banks. Currently the Riksbank, Sweden’s central bank, is working on its national cryptographic currency, e-Krona.

“The Riksbank is investigating whether it would be possible to issue a digital complement to cash, an “e-Krona”, and whether such a compliment could support the Riksbank in promoting a safe and efficient payment system,” the national bank stated in September 2017.

But if the future is crypto crowns, who should issue them? Should it be tech anarchists, national banks or private companies?

State and entrepreneurs to co-create

In Sweden, this year’s action plan states that a national cryptocurrency, e-Krona, should supplement but not replace the ordinary crown. It can be issued to private individuals, companies and authorities. The currency must be stored in an account with the central bank and be available all hours a day, every day of the year. And the Riksbank will facilitate features that private companies like banks and PSPs are currently responsible for.

“The Riksbank will be responsible for the issue, redemption, and settlement of the e-Krona. Interaction with users of the e-krona will be partly or entirely through private or public sector agents with authorization to mediate payments,” the action plan states.

The Riksbank has invited tech-entrepreneurs to participate in the creation of the e-Krona. Among the entrepreneurs who have submitted proposals for how a state-backed cryptocurrency could take shape is Victor Jacobsson, co-founder of the fintech giant Klarna. However, there is still a long way to go before the e-Krona becomes a reality.

Denmark: No, No …. and No!

The Danish National Bank has also considered a similar solution to e-Krona. Unlike the Riksbank, they reject the idea that a Danish cryptocurrency is a matter for National Bank of Denmark.

“Digital central bank money would fundamentally change the Danish National Bank’s role in the financial system, and make the National Bank of Denmark a direct competitor to private banks,” the National Bank’s report states.

“The introduction of the national cryptocurrency would also create risks of financial instability. A so-called bank run, which would happen if many households and companies withdraw their money from the bank at the same time, may have a far more serious character if they have the opportunity to move their deposits to an account at the National Bank in a few seconds instead of getting them paid in cash,” The National Bank of Denmark states in the report.

The National Bank of Denmark has repeatedly confirmed these views in subsequent interviews.

Not realistic to have national banks in charge

With the National Bank of Denmark out of the picture, it opens up for a private tech company to push ahead in the race to issues a crypto-based e-crown. The startup Aryze wants to create a so-called stable coin whose value is kept stable by tying it to the value of the old-fashioned ‘kroner’. When asking Aryze, they completely agree with the National Bank of Denmark: the digitalization of the national currency is a task for the private sector.

“I am tired of the discussion that a national bank is planning a cryptocurrency,” says Morten Nielsen, who has many years of experience of investment banking and from the crypto-area, and current CFO in the startup Aryze.

Morten Nielsen, CFO in Aryze.
Morten Nielsen, CFO in Aryze.

“The way the Swedish National Bank are framing their engagement with entrepreneurs is just for show. An account in the national bank doesn’t work. The first thing that will happen if a national digital currency is launched is that corporations will place most of their excess short-term liquidity in the national currency — bypassing bank deposits, which will totally undermine the way banking traditionally works,” he says.

He estimates that a Danish e-crown with the same characteristics as cash, but the same flexibility as digital money, will lead to companies moving their surplus liquidity to the National Bank of Denmark to keep the money secure. Thus, the e-crowns will not just make a bank run where the population withdraws cash in fear of a crash more severe than the previous one. It would result in distrust and under-financed private banks.

The national bank is not a tech company

If the Nordic National Banks all develop their respective e-crown, it could easily end in a situation where they all use different technologies without the ability to communicate with each other. They will need to be exchanged via a crypto exchange. This is where Morten Nielsen spots the biggest security challenge.

“National banks are not tech companies,” says Morten Nielsen. “The e-crown solution that we eventually will implement has not been invented yet. The National Bank of Denmark cannot build it – and why should they? What will the next thing be? Central banks issuing credit cards, or loaning money directly to citizens and companies?”

A future of financial surveillance?

One of the advantages of cryptocurrency is that they can be programmed. But that feature can also be an argument against the state issuing them.

“There are benefits of a crypto crown, but if the National Bank of Denmark become the issuer, politics may be brought into it. It can be used to track citizens and, in theory, also limit public grants and loans for students in Denmark only to be spent on rent and study books, or that social benefits cannot be used on traveling or cigarettes,” Nielsen explains.

But Morten Nielsen also has an interest in Aryze becoming the preferred platform for the cryptofication of crowns or dollars. The question is whether it creates the same risk of surveillance if a private company is responsible for the issuing of the currency, especially with Facebook’s Cambridge Analytica blunder in recent memory.

Also read: “We are not far from a future where we can pay rent in Netflix coins”

“Our e-crown will also be programmable, but by the community,” says Morten Nielsen. “The National Bank of Denmark could program tax directly into the e-crown, whereas our mindset is that VAT and tax should be a module the user can choose to add.”

At the same time, he explains that with a crypto-based company it is possible to make developments more democratic, which is much more than would be possible with the National Bank.

“A decentralised currency can also have decentralised decisions so that those who own the currency have the right to vote and have co-determination,” says Morten Nielsen. “We will do what we can to make it impossible to be leaked data. We want a model where people own their data, and here blockchain can achieve some very exciting things. Right now, it’s a case of a trust, but we want to remove that so instead it becomes impossible for us to cheat.”