All central banks are currently evaluating the feasibility of issuing what it is called Central Bank Digital Currency or CBDC. The name seems to imply that a new currency will be put into circulation by the central bank. The currency of the Unites States is the US dollar, a fiat currency, and it is less likely that a new currency will be in circulation soon, if ever. To clarify, the Transferable Digital Notes Project is proposing a digital form of the US Dollar, not a digital currency. It is more appropriate to call this effort ‘digitizing fiat currency’ or creating ‘fiat currency in digital form’.
All efforts to implement CBDC are influenced by the technologies behind what it is called ‘crypto or digital currencies’ and consists of patching these technologies. It is said that all the problems will be solved over time. Currently, there are mature, proven, state of the art technologies used in the Financial Systems Infrastructure and there is no reason not to use them when new systems are implemented.
There is a finite amount of digital currency based on blockchain/DLT that can be put into circulation, making it very similar to gold and silver coins minted by the government with the exception that they are not legal tender. If the government started issuing Bitcoins and decrees as legal tender, then they would be as useless in economic activities as the Gold Eagles.
A different approach is to create Fed accounts for everybody. This approach has many negative side effects and actually does not solve the digitalization problem. It should be noted that because digital devices and systems are used for processing money transactions, it does not make the money digital in the same way that processing money using mechanical means before computers did not make them ‘mechanical money'.
The digital form of US Dollars proposed is called Transferable Digital Notes or TDN, and it will be the third basic form of money beside paper notes/coins and Fed reserve accounts. The system processing TDNs is called Transferable Digital Notes System or TDNSYS.
Creating currency in digital form is conditioned by finding a solution to the double spending problem. This is a problem that arises when using digital tokens. For example, to reinforce single use licensing, a software company issues a digital key (digital tokens) to the buyer. The problem is that the key can be used on more than one installation, in other words it can be double spent. To prevent double spending a key can be generated based on hardware specific to the machine where the system is to be installed or by using a license server.
Another similar situation arises when using numbered, anonymous bank accounts (if they still exist) or safe deposit boxes. The owner of an account or safe deposit box can transfer the ownership of the value by transferring the account number or the key. At this point the new and previous owners both have access to the account or box (assuming the original owner made a copy of the key). To prevent ‘double spending’ the new owner changes the account number or the lock on the deposit box.
There are other situations of ‘double spending’ and analyzing them helps to find a solution for preventing the double spending of digital tokens and enabling the use of digital tokens as digital currency.
We are looking for educational, governement of private institutions interested in developing a proof of concept prototype.
The best application for TDNs is for replacing paper money by a central bank.