The implicit, and ever more explicit, institutional acceptance of the dominant cryptocurrency Bitcoin (we say dominant because as we pointed out last week [5], there has been an unprecedented spike [6]of digital currencies one can pick and choose from) continues when following the surge in vendors willing to transact in BTC over Thanksgiving [5], the latest news comes from the birthplace of the modern central bank, the UK, where we learn that none other than the UK Royal Mint has been working on plans since this summer to issue physical Bitcoins in collaboration with the Channel Island of Alderney.
But where the story gets downright surreal is that as the FT reports [7], the same symbolic Bitcoin token issued by the Royal Mint "would have a gold content – a figure of £500-worth has been proposed – so that holders could conceivably melt and sell the metal if the exchange value of the currency were to collapse." In brief: a perfect, and utterly incomprehensible, fusion of (opposing) hard, soft and digital currencies all rolled into one...
From the FT [7]:
The tiny Channel Island of Alderney is launching an audacious bid to become the first jurisdiction to mint physical Bitcoins, amid a global race to capitalise on the booming virtual currency.
The three-mile long British crown dependency has been working on plans to issue physical Bitcoins in partnership with the UK’s Royal Mint since the summer, according to documents seen by the Financial Times.
It wants to launch itself as the first international centre for Bitcoin transactions by setting up a cluster of services that are compliant with anti-money laundering rules, including exchanges, payment services and a Bitcoin storage vault.
So, convert a digital currency into fiat, issue plastic (or some other material) tokens (appropriately covered in some goldish color) representing "value" because suddenly the currency (supposedly) has the blessing of central banks, and then store them in some basement? Brilliant.
Just how is the UK Royal Mint involved?
The special Bitcoin would be part of the Royal Mint’s commemorative collection, which includes limited edition coins and stamps that are normally bought by collectors. It would have a gold content – a figure of £500-worth has been proposed – so that holders could conceivably melt and sell the metal if the exchange value of the currency were to collapse.
Wait, what: gold-backed Bitcoins? If so, that would be truly revolutionary because for the first time a Treasury (and by implication, a central bank) is effectively hinting that not only are they willing to fiat-ize Bitcoin, but also have the symbolic BTC token (after all Bitcoin is a digital currency by definition) serve as a commodity trap. Because once enough gold-backed physical Bitcoins are locked up in some basement in the UK, who has the master key? That's a rhetorical question by the way.
Naturally, the UK Mint is not quite eager to disclose full details while the plan is still being finalized:
David Janczewski, head of new business at the Royal Mint confirmed it had been approached by the finance minister of Alderney to “explore the possibility of manufacturing a physical commemorative coin with a Bitcoin theme”.
“Discussions have not progressed further and at this stage it remains nothing more than a concept,” he added.
But the controversy around Bitcoin has made the Alderney plan a sensitive subject. The Treasury, which owns the Royal Mint, declined to comment on the plans. George Osborne, the British chancellor, also holds the title of Master of the Mint.
Since there is understandably much confusion over what the minting process of a physical gold-backed token representing a digital currency, with the backing of an entity that does the bidding of an issuer that only believes in fiat currencies, here is the FT with the blow by blow.
An independent company will provide the Bitcoins. If the price plunged, neither Alderney nor the Royal Mint would lose anything.
The company would put the Bitcoins in an escrow account at an agreed price.
Meanwhile, the Royal Mint would take customers’ orders for its minted Bitcoins and receive money from those coin sales.
The virtual Bitcoins backing the physical coins would be held in digital storage facilities by Alderney.
The Mint would issue the commemorative Bitcoin, paying for the value of the gold content itself. Alderney would receive royalties from sales of the coins.
Coins could be redeemed for sterling at any point in Alderney for the price of a Bitcoin on that day.
All we can do at this point is sit back in wonder and amusement as we hit the pinnacle of monetary confusion, whereby the UK Royal Mint, willing to take full advantage of retail confusion, will mix hard, soft and digital currency, and produce a product... that is locked away on an island that belongs to the UK.
And all we can say is "brilliant", because if there is a better plan to meld the sentiment of both hard and digital-currency (and hence, anti-fiat) advocates, and to redirect it in a "fiat" pathway, we have yet to hear it.