Digital Cash: The Case For Independant Centralized Currencies

Industry 13 min, 53 sec READ

by Chris Madill

Saar Wilf, the founder of the ambitious Initiative Q project, helps us explore the potentials of a Centralized Virtual Currency.

I’ve been struggling with the inefficiencies of the payment world since my first online payments startup in 1997. This is one of the biggest and most impactful problems to solve in our current economic system. The crypto boom educated millions of people on how money works, and how valuable [a digital currency] can become if widely adopted. / Saar Wilf, Founder of Initiative Q  

In today’s article, we explore the concept of privately issued digital currencies, otherwise known as Centralized Virtual Currencies (CVCs). CVCs are similar to “pure” cryptocurrencies like Bitcoin and Ethereum, in that they provide a digital medium for exchanges of value, without ties to traditional fiat currencies or their associated financial systems (such as central banks and national governments). However, as a general rule, CVCs differ from pure cryptocurrencies in that they are centralized rather than decentralized, meaning CVCs are often governed, issued, and managed by the people who create them, rather than by a trustless algorithm spread throughout a decentralized network. Sometimes, the lines between CVCs and cryptocurrencies become blurred, and there is often confusion surrounding the nuances of CVC technology and how it relates to “Bitcoin” or “Crypto” technology. 

For example, people often think that because a digital currency is “digitized” or uses blockchain technology, it is therefore decentralized, but this is not true. Take a look at J.P. Morgan’s groundbreaking JPM Coin, a central-bank issued digital token built atop a business-focused version of the Ethereum blockchain called “Quorum”. JPM Coins function very similarly to ETH tokens, but inside of a centrally governed proprietary network of computers belonging to J.P. Morgan, rather than a globally-distributed public network. While the Quorum network is “distributed” amongst various nodes owned by J.P. Morgan, it is not decentralized in the same sense as Ethereum, because all Quorum nodes belong to one centralized authority. Despite this, JPM Coin is often viewed as a “crypto” competitor by the mainstream media, when in actuality, it is simply an application of blockchain technology within a closed ecosystem.

CVCs are also sometimes promoted as “decentralized” by their creators in order to piggy-back off the hype surrounding crypto-technology. A great example of a CVC masquerading as a cryptocurrency can be seen with Facebook’s hyped-up “Libra” project, a blockchain-based digital currency that is hell-bent on taking over the world with its ease of use and massive payment network. The Libra project has tried its best to appear as though it is decentralized, likely because decentralization is “trendy” right now, but the Libra most definitely is not decentralized in the truest sense of the word. Yes, the Libra could help users exchange value over the internet, and the developers behind the project are creating a powerful digital currency, but to call the Libra anything other than a CVC is a bit far-fetched, considering the “decentralized” network governing the currency consists of nodes solely belonging to a very exclusive group of fortune 500 corporations.

Making Money Better

CVCs and cryptocurrencies may be very different in how they are governed, but they do have a lot in common with regard to their intended purpose. Sure, CVCs will never be able to “overthrow the monetary system” by circumventing central banks and governments, but really, they don’t need to. Despite how they are marketed, CVCs are not designed to remove the monetary policy from the hands of governments in favor of unbiased computer algorithms, CVCs are instead created to achieve a much less politically-charged goal: to make money better. Making money better is a really important thing to do, and there is a long list of improvements that can be made without circumventing the trust networks already used in our current financial structures. 

We currently live in a world where individuals cannot access, exchange, or control the value they own without dealing with a long chain of custodians and an archaic collection of unrelated payment networks -- networks that are often not interconnected across national borders, or sometimes not even domestically. Your average internet user can transmit almost ANY form of data more easily than they can exchange value, despite the fact that current technologies exist that are capable of making value transfers as frictionless as any other data transfer. It’s not just the exchange of value that is hindered by our current financial infrastructures, but almost every aspect of how currency works. From advanced economic dynamics like credit allocation, fraud prevention, and security, to things as simple as access to basic banking services, our fiat currencies and associated systems routinely fall short of the potential offered by already established financial technologies. Digital currencies, and particularly centralized ones, offer the opportunity to vastly change how money functions on every level without requiring society to drastically change how money is created and managed by governments and banks.

Unfortunately, many crypto-purists forget that “making money better” and more efficient is a big part of why Bitcoin and other cryptocurrencies were created in the first place. Instead, crypto die-hards continue to beat their drums and chant “Decentralization!” over the hum of energy-sucking ASIC miners while HODL’ing their extremely volatile digital tokens. In this new age of the “digital asset class”, speculative investment is practically the only thing crypto is good for. Let’s face it, despite the best efforts of the big decentralized cryptocurrency projects like Bitcoin and Ethereum, it still takes people hours, if not days, to send value over the internet in a reliable, stable, safe and efficient manner, no matter which cryptocurrency or fiat payment network they choose. In other words - Money still sucks, and cryptocurrencies aren’t yet solving the issue.

The innovation in cryptocurrencies is the use of blockchain technologies to decentralize control and make the cryptocurrency “auto-govern” itself. However, current cryptocurrency technology is not mature enough to support a modern payment network. It solves a minor problem (decentralized payments), but creates many much worse problems, such as instability in purchasing power, higher security risks, and high transaction costs.  / Saar Wilf, Founder of Initiative Q

With the obstacles facing decentralized cryptocurrencies, it is interesting to think that a well-designed CVC might actually be better suited to solve the issue of value transfer in the modern age. For example, where decentralized cryptos face extreme scrutiny from regulators because of their “unmanageable” nature, CVCs can be easily tailored to suit the demands of global policymakers in real-time. Where decentralized cryptos face wildly volatile valuations on the open market, CVCs can adjust to the economic underpinnings of their native ecosystem, changing their parameters to suit supply and demand dynamics, thus providing more reliability and stability in purchasing power. CVCs are also much more likely to be efficiently managed because their networks are centralized, meaning that a central authority could offer a better understanding and oversight of the payment network than a decentralized group of individual nodes with opposing views.

Initiative Q - Unapologetically Centralized

Initiative Q is an up-and-coming CVC project with noble ambitions, and it hopes to create a digital currency that will finally bring payment technology into the 21st century. The project offers a wide range of predicted benefits, such as integration of the latest payment technologies, advanced fraud prevention, payment dispute arbitration, credit allocation, and a long list of other advantages over cryptos and fiat currencies. The project is extremely interesting in that its founders plan to manage IQ’s monetary policy via a democratically elected committee of expert economists, which will operate separately from the corporate entity responsible for developing the IQ payment platform. When you read the information provided by the Initiative Q project, one can’t help but notice there seems to be no involvement from banks, big corporations or even cryptocurrency projects. IQ is its own beast, and the company’s focus seems to be on sound economic policy and technology implementation, or, in other words - making money better.

Initiative Q doesn’t try to masquerade as something it's not, and it is unapologetically centralized, a refreshing perspective in the new age of digital currencies. Saar Wilf, the project’s founder, is a serial entrepreneur with a passion for FinTech startups. Most notably, Wilf founded his first internet payments start-up in 1997 and later founded Fraud Sciences, a service which developed the online transaction verification and fraud prevention technologies that would eventually be purchased by PayPal for $169 million in 2008. 

We interviewed Saar Wilf when Initiative Q first began signing-on users in late 2018, and we’ve reached out to him today to update our readers on his exciting CVC project, Initiative Q. Wilf’s project is one of the best examples of what a well-intentioned, well-designed CVC could look like, and his insights offer a valuable perspective on the future of digital currency.

The Interview

Because of your involvement with Fraud Sciences, it would be fair to consider you an authority on the importance of trust in a payment network. Could you elaborate on why privacy, trust, and security are essential components of a successful payment network? 

Obviously, when dealing with money, people are very sensitive to these issues and a single breach may be enough to lose the trust of millions.

However, what many people are not aware of is the cost perspective. Security also implies operational costs – if money is lost, forged, hacked or stolen, the system has to indirectly account for it by increasing its usage fees. Furthermore, the costs of preventing further losses – employing security checks, procedures, limitations on transactions – is even far greater.

When designing a new payment system that is not tied to legacy technologies, all of these costs and risks can be reduced by orders of magnitude.

Where is IQ in its development? 

Initiative Q is still in its early days, and there is a long road ahead.

We’re working hard to generate more support and registrations to the project. It is true that millions have already signed up but we need to reach tens of millions to have a better chance of success. We have recently released the new mobile app, which is quickly being adopted by existing and new users. This app is the first public element of Initiative Q’s payment system and will eventually allow users to pay and interact with sellers and others.

What locales are currently garnering the most interest in the Initiative Q project?

The countries with the most registered users are the United States, United Kingdom, Brazil, and India."

What developments have the project seen with regard to its monetary policy?

"We have assembled a prestigious Economic Advisory Board, led by Professor Lawrence White, who has been supporting [the project] since the very beginning. We are contemplating various monetary policies and will be able to shed more light on this topic as we get closer to going live.

What sets IQ apart from other privately issued digital currencies, like Libra?

Initiative Q has been very clear about how things are going to run monetarily. The Q is not a crypto-currency and is not subject to the technical limitations imposed by existing blockchain technologies. Rather, its monetary policy will be governed by an independent monetary committee, much like a central bank. We know that crypto-purists are not in love with this idea, to say the least, but we believe that, as of today, this is still the best governance solution available. Once a better model is created, we will happily adopt it.

The monetary policy is intended to maintain the stability of the Q’s purchasing power, making one Q equal to roughly one dollar. However, since Q is not inflationary, it is expected to slowly appreciate in value compared to the USD and other government currencies.

Libra and stablecoins intend to maintain stability by fully backing them with government currencies or financial assets. This monetary model has been long abandoned by economists due to its low flexibility under economic changes. 

Q is therefore designed as a fiat currency, managed by an independent democratically elected monetary committee.

Is there room for more than one digital currency based payment network on the internet? Can projects like IQ coexist with Libra and Bitcoin? 

Ideally, there should be a single democratically-managed global digital currency – A currency of the people - which is in turn supported by many payment networks competing to reduce costs and improve service. 

Of course, market forces don’t necessarily reach the optimal equilibrium, so it’s definitely possible we will have several competing currencies. This will somewhat complicate trade and increase costs, but is definitely manageable.

How will IQ keep its value stable? 

As mentioned above, an independent monetary policy will oversee the currency demand and supply, adjusting it to the economic realities of the system, such that its value is maintained stable.

This is very similar to how central banks in advanced economies work, although Q - being a fully digital currency - will provide the monetary committee with much stronger data and monetary tools than those of central banks. 

How is IQ planning to regulate its monetary policy in a fair and unbiased manner?

The monetary committee itself will be completely independent of the Initiative Q company. It will be comprised of leading monetary economists, elected and supervised by the Initiative Q community.

Is IQ currently coordinating with regulators to achieve compliance, or is it still too early in the project's development?

We have had some preliminary positive engagements with regulators. Initiative Q will, of course, comply with all rules and regulations.

We believe that technology reduces the conflict between regulators and users - security is improved, illegal activity is reduced, and procedures can be automated. This leads to lower costs and better service for all.

The enormous costs and headache caused by current payment and money regulations are more a result of antiquated technologies than of “evil” regulators.

Centralization Isn’t Necessarily Bad

There are dozens of CVCs being developed in the wake of the crypto-boom, and while they might not be the same thing as a decentralized cryptocurrency, there is no reason to believe they are not useful. In fact, centralization has some serious advantages over decentralization when it comes to efficiency, scalability and regulatory compliance. If you’re a crypto-geek like me, it’s easy to look at CVCs somewhat like a transport layer for fiat currencies. CVCs can live on top of the existing financial system, providing a technologically-superior layer to facilitate transaction settlement without having to relate the information back to the archaic networks underneath until necessary. Because CVCs are centralized, the people in charge of their governance can ensure that a particular CVC remains compliant with the ever-changing world of global monetary policy, and if those in charge are elected by the people using the currency, it is safe to assume the policies would reflect the best interest of the people rather than the agenda of a particular government, bank or corporation. Of all the CVCs I have come across, Initiative Q appears to have the clearest vision, and IQ isn’t shy about what it is or is not.

Saar Wilf has offered us key insights into the payment network issues facing today’s current financial system, and if his IQ project can achieve the critical mass needed to launch a real payment network, it will likely be a valuable experiment for the world of CVC implementation.

I don’t know if Initiative Q will become the de-facto digital medium of exchange for the internet, as the IQ payment network is still in the conceptual phase, perhaps lagging behind projects like Facebook’s Libra in terms of its technology roadmap. That said, I do believe IQ contains some very good examples of the necessary concepts needed to create the digital currency of the future, like democratically-elected independent governance, and the honest-to-goodness intentions needed to improve how our economy functions in the digital age. CVC projects like Libra and decentralized currencies alike could benefit from this type of forward-thinking.

I’d like to thank Saar Wilf and the IQ team for offering their time and insights for this article.