2014-04-18

MintChip, what it could've been...

MintChip was a project started by the Canadian Mint to create a government backed cryptocurrency. It was announced in 2012 with a MintChip Challange to develop various project concepts that would use the MintChip. Unfortunately, the project was stopped recently. I followed and analyzed the project early on, and I would like to share with you my ideas on what the MintChip could've done to the Bitcoin space and the Canadian consumers in general.


MintChip at a glance

First of all, lets get everyone up to speed about what the MintChip is or could've been. A number of hints have been released about the project, although a full technical specification was never released. I did approach a representative of the Canadian Mint during Money 2020 conference in 2013 about the algorithms behind the MintChip and the only answer I got was that it was above their pay grade. Regardless, here are some properties of the MintChip we can speculate would be part of the final implementation:
  • MintChip would operate in CAD and the currency itself would be backed in 100% by the Canadian Mint in form of Canadian Dollar currency. No fractional reserve.
  • Unlike Bitcoin, the currency would need to be able to be generated as needed. There would be no mining or anything like that. This suggests the system might be closer to Ripple or Open Transactions.
  • The system would facilitate payments of less than $1. This would probably mean payments would be cheap and there would be possibility of micropayments, unlike with credit cards.
  • Payments are instant and irrevocable
  • There is no restriction to who can use MintChip, it would probably be an anonymous system
  • MintChip would probably take a form of a proprietary hardware.
  • Transactions in MintChip could hapen between two people without either of them being connected to any network. This would probably mean the transaction data is stored in the hardware and the hardware would be forcing those rules. Without proprietary hardware and software this would probably be impossible.
The most important takeaways from this would be that MintChip would be operated by Canadian Mint, would be fully backed by CAD and that would be the currency used in the system. MintChip would be most likely as anonymous as Bitcoin and would allow anyone to make person-to-person payments at minimal cost. Proprietary hardware and lack of need for Internet connection are a take it or leave it bundle. If done away with, MintChip could be implemented in systems like Ripple, Mastercoin or Ethereum quite easily.

Now lets talk about what implications MintChip could've had if the project was ever fully realized...

Digital currency for everyone

Probably the biggest implication of MintChip would be that suddenly people could use digital currencies to replace a big chunk of their banking needs. This would have a big impact on a lot of Bitcoin businesses that are unbankable just due to the sole fact that they are dealing with Bitcoin. Bitcoin Exchanges would be using MintChip as a way of depositing and withdrawing money, people selling Bitcoins face-to-face could do so without the hassle of handling cash.

Introduction of MintChip would greatly lower the barrier to entry into Bitcoin. You would probably be able to go to any Canada Post location or to a bank and deposit money into MintChip. Canada Post would probably ask you no questions - they would probably handle your deposit just as gladly as they would sell you a silver coin from the Mint. The banks couldn't question why you would want to deposit money to MintChip, since they wouldn't know what you would be using it for later. Right now if you send money frequently to a Bitcoin Exchange, they might start questioning it and trying to stop it. I doubt they would be able to stop you depositing money to MintChip any more than they would stop you from withdrawing cash - both would be legal tender in Canada.

Adoption by businesses

Since the CAD on MintChip could easily be converted to cash, it would probably be slowly adopted by more and more businesses. You might be able to use it to pay your rent, buy groceries, pay bills, shop online, etc. A lot of businesses would love this solution - low fees, no chargebacks, it would be like having a credit card terminal only with less hassle, costs and chargebacks.

Probably a number of Bitcoin adopters would push for anyone they pay money to to adopt MintChip as a means of payment. This would allow them to bypass the banks entirely and be able to handle more and more of their business only in Bitcoin and MintChip. The Bitcoin adopters would probably love this idea since it would mean they don't have to worry about their banks shutting their accounts down if they exchange their BTC for CAD on a regular basis.

Decline of credit cards; be your own bank

There are people that use credit cards to purchase things they can't afford at the time. MintChip would not be for them. However, there are people that use credit cards just as a means of settling payments and they don't care about the credit. If MintChip was more widely adopted, they could move some or all of their purchases from credit cards onto MintChip.

This would work similarly if banks weren't making the use of debit cards something abnormal. Coming from Europe, debit cards are the norm. In Canada, credit cards are the norm and if you want to use a debit card you are charged some crazy fees for no reason...

Similarly, if people would be using their MintChips more often they would be more inclined to hold some of their savings on it. Just like with Bitcoin, with MintChip you could be your own bank. Nobody could freeze your account, take your money away, and you could transact in it as you would see fit.

Conclusion

It is a shame the MintChip project was cancelled. A government-backed cryptocurrency would break the iron hold banks have on the monopoly of digital money and allow Bitcoin users to transact the way they see fit without the fear of having their bank accounts shut down.

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