The K-Y Protocol: The First Protocol for the Regulation of Crypto Currencies (E.G.-Bitcoin)

Abstract

Crypto currencies like Bitcoin are gaining prominence as a medium of exchange. They have several benefits like very low transaction cost, fungibility etc. But Crypto currencies are also identified with their use in crimes, illegal activities and speculation. Part of the reason for their prominence as well as notoriety is the fact that they have no Sovereign Backing whatsoever and also because they are decentralized. To make Crypto currencies acceptable by the people and also curb their misuse, the authors have proposed a protocol containing a set of standards and procedures. By using this procedure, any nation can create its own Sovereign Backed crypto currency called NationCoin. A commission will be established which will hold a certain quantum of money loaned by the Government. This loaned money will provide the Sovereign backing to the Crypto Currency. A Controlled Block Chain Protocol is used. The Genesis Block of several NationCoins is then provided to the banks in the country to use them for interbank settlements. These Interbank transactions will lead to the mining (generation) of additional NationCoins by the commission which will hold it without releasing it to the public. Once there are sufficient numbers of NationCoins so as to be equal to the loaned amount unit-for-unit, it shall be released to the public for use.