Understanding Off-Ledger Currencies
An off-ledger currency refers to a currency that does not exist on a blockchain or other distributed ledger. This category includes all currencies issued by nation-states.
Although off-ledger currencies are not explicitly designed for blockchain use, they can still be utilized within blockchain networks due to their widespread acceptance and utility.
Exploring the Role of USD and Central Bank Issuance
Fiat money serves as an example of an off-ledger currency since central banks outside of blockchain networks issue it.
The United States dollar (USD) is a prominent example of an off-ledger currency that is recognized worldwide due to its value and is commonly held as a reserve currency by financial institutions.
Unlike an on-ledger currency, off-ledger currencies are centrally controlled and issued without any predefined limits.
Understanding Value, Regulation, and Economic Impact
As a result, off-ledger currencies do not possess intrinsic value.
Instead, their value derives from the backing and declaration by a government as legal tender.
Central banks have the authority to issue and regulate fiat money, granting them significant economic power and influence.
However, off-ledger currencies can be counterfeited by malicious actors if proper security measures are not in place, and uncontrolled issuance can adversely affect economies.
Exploring Stability, Usage, and Implications
Unlike on-ledger currencies, off-ledger currencies do not require continuous incentivized computational power or other consensus mechanisms to exist.
Some off-ledger currencies are actually digital equivalents of fiat money and are used on blockchains, such as USD or EUR, due to their stability and popularity.
Fiat-based stablecoins, which are tokens pegged to the value of nation state currencies, can also fall under the definition of off-ledger currencies since their value is ultimately derived from off-ledger currencies.