Some governments are getting into the digital currency game, offering their own alternatives to cash with traits that differ in meaningful ways from cross-border cryptocurrencies like Bitcoin.

New options like Canada's MintChip and Venezuela's sucre take many of the traits of Bitcoin, such as low-cost transaction processing, but tether the currency to a government authority. To some, this might be seen as an advantage, but to others, government control invites many unwelcome consequences.

Government-run currencies are inherently closed-source and closed-loop, locking consumers into a system without choices, says Peter Taylor, president of TAYPE International Business Service Inc. in Montreal, Canada.

"If you push consumers into a closed-loop system, then what's the incentive to keep these systems cheaper" than the systems currently used, Taylor asks. "Then we're back at square one…and people are all trapped in a small, oligarchic type ecosystem."

Bitcoin is an open source project, allowing startups and other companies to build on top of the software and adapt it into new types of digital currencies for specific use cases.

Decentralized currencies also take the management of the currency beyond the government's control.

"This may sound facetious but what a country would lose by adopting a cryptocurrency like Bitcoin, that is, one that is designed not to be inflationary, is the ability to manipulate the monetary policy to its advantage," says Juan Llanos, an independent risk expert and adviser, in an interview with Latin American Advisor. "If the system is not managed responsibly, the short- and long-term consequences to the majority of the people can be disastrous. A cryptocurrency like bitcoin disintermediates even central monetary authorities and hands the power to regulate the currency back to the market."

Plus, many cryptocurrency enthusiasts speak out against governments printing more money, which can cause inflation. While inflation resulting from this practice is normally stable in the U.S. Argentina and Cyprus have suffered high rates of inflation, which has hurt citizens' savings. 

There is an ongoing push to digitize cash from many countries, says Taylor. "Around the world there's definitely been a perception that people are ready for the cashless society," he says.

"Governments or nation states could take many routes in the quest to get rid of physical coinage: either implement their own decentralized virtual currency scheme, participate in one like Bitcoin and put up regulations or go the proprietary route," Taylor says.

Decentralized systems are inherently less fragile, Taylor says. Since a currency like Bitcoin is not bound to a single government, it won't disappear in the event of war or revolution.

Canada is taking the lead, he says, taking a wait-and-see approach with Bitcoin while pushing ahead with its own MintChip digital currency. Taylor also says the U.S. and many parts of Europe are ahead of the pack, citing efforts such as the New York Department of Financial Services' consideration of a special license for Bitcoin and other digital currencies.

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