Hello fellow cypherpunks.

What I have for you today is a mental exercise I have been working on, that I hope can have a real application and actually be possible to implement, or will give someone with better understanding of economics than me an idea to work from.

What I have been brainstorming is simple: How to create a state currency pegged to Bitcoin, and how to implement it, creating a country with the hardest form of money possible.

I wanted to use numbers from a real country but unfortunately I couldn’t find the figures I wanted and the maths was getting too confusing for my brain, so I will use a fictional country.

We are now the leaders of Blockistan.

Blockistan wants to be free from fiat currencies and fiat debt, so we want to move to a Bitcoin standard. However, we are presented with 3 problems: fiat money is easy to use, fiat money has government guarantees and fiat money has a very wealthy banking system that loves it and doesn’t want it to cease to exist.

As the leaders, our job is to marry these issues to the advantages of Bitcoin.

Of course that we will make Bitcoin legal tender, and all the tax advantages of that. But we need more. We need something that is as easy to use and as safe for the citizen as fiat.

We will create a state currency and peg its value to sats.

1st step) Convert all reserves to BTC.

Blockistan has $10 billion in several reserve currencies, including foreign currencies and gold. We are going to grab all of that and buy Bitcoin.

At current price, this means our reserves are 232.000 BTC.

2nd step) Create our peg.

We are going to call this new currency Star, just so I can use * as the representing symbol.

Do some maths and research and we come to the conclusion that the size of the circulating fiat supply, including debt, is $50 Billion.

Now we have a choice on how to peg our currency. It will have to be a multiple of our reserves of 232K BTC, but it has to be useful too. If we were pricing our items in dollars before, we were doing it to the nearest cent. This means that we have 5 to the power of 12 units of account. If we preserve this ratio, then we simply divide our reserves into the degrees of freedom we want.

This gives us a number close to *1 = 4.5sats.

This is our peg.

3rd step) Convert all cash/debt into Star

This is a simple software update. All accounts stay in place. All banks stay open.

Internally, nothing changed. People get the same balances on their accounts (no cents anymore, we are using whole units), goods stay priced the same way. All of this happens under the hood.

Final step) We cease money printing.

Here comes the actual change. The central bank doesn’t make money anymore. At least without the creation of additional Bitcoin supply. We are now pegged to BTC. So the only way to increase the circulating supply is to acquire more BTC.

This is it. We now have a state currency that is has hard as it is possible. No external or internal influence, no way to mess with the money supply. Deflationary at the singularity.

Advantages

Doing it like this instead of turning Bitcoin into the circulating cash has a few interesting quirks.

People that want to, can use BTC directly. No real issue here, conversion is simple, there is a peg. Any bank will be able to do it.

The general public that doesn’t want to do this, still has the protection of BTC’s monetary policy, even if they miss on the sovereignty part of it.

Capital in Star can be insured by the State. Consumer protection can still occur. Risk is lowered.

The banking system stays operational, but instead of being a controlling factor of the economy, they serve it by network imposition.

The internal market is protected from BTC volatility, since everything is technically priced in sats, the sat to dollar value doesn’t matter to the internal market, only to exports.

Further more, this solves the “inflation issue” that some people seem to have, where inflation is necessary for economic growth (I disagree), by creating localized internal inflation.

Minting new Star is possible, you just need sats. Increase your sat reserves and you increase the money supply.

You achieve this by syphoning sats from the outside via economic/production power and by mining using whatever resources the country has.

And there you have it. A clean transition to a Bitcoin pegged state currency. Keeping the power of the Bitcoin economic model and making it accessible at a state level, while maintaining the freedom of people that want to self custody.

This is what ultimate adoption will look like.