NationCoins are cryptocurrencies backed by Sovereign Authority (Simply put, they are Government issued Bitcoin-like cryptocurrencies). In this paper, we explain the generation, security and distribution of NationCoins by a Sovereign Authority. We begin by explaining the concept of cryptocurrencies (also referred to as cryptocoins in this paper). We then discuss the concept of Regulated and Sovereign Backed Cryptocurrencies (RSBCs). Then we envision a scenario where cryptocoins are a main medium of exchange in an economy. The generation, security and distribution of NationCoins by a Sovereign Authority are deliberated. Finally, the paper concludes by outlining the functions of the Sovereign Authority vis-a-vis NationCoins

Hegadekatti, Kartik

S G, Yatish

Munich Personal RePEc Archive

MPRA
Munich Personal RePEc Archive
Generation, Security and Distribution of
NationCoins by a Sovereign Authority
Kartik Hegadekatti and Yatish S G
21 December 2016
Online at https://mpra.ub.uni-muenchen.de/82621/
MPRA Paper No. 82621, posted 11 November 2017 07:56 UTC
 Electronic copy available at: https://ssrn.com/abstract=2888347 
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 1
GENERATION, SECURITY AND DISTRIBUTION
OF NATIONCOINS BY A SOVEREIGN
AUTHORITY
Dr.Kartik H & Dr.Yatish S.G
Authors’ Email: dr.kartik.h@gmail.com; dryatish.blr@gmail.com
ABSTRACT
NationCoins are cryptocurrencies backed by Sovereign
Authority (Simply put, they are Government issued
Bitcoin-like cryptocurrencies). In this paper, we explain
the generation, security and distribution of
NationCoins by a Sovereign Authority. We begin by
explaining the concept of cryptocurrencies (also
referred to as cryptocoins in this paper). We then
discuss the concept of Regulated and Sovereign Backed
Cryptocurrencies (RSBCs). Then we envision a scenario
where cryptocoins are a main medium of exchange in
an economy. The generation, security and distribution
of NationCoins by a Sovereign Authority are
deliberated. Finally, the paper concludes by outlining
the functions of the Sovereign Authority vis-a-vis
NationCoins.
 Electronic copy available at: https://ssrn.com/abstract=2888347 
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 2
INTRODUCTION
A cryptocurrency is a medium of exchange using
cryptographic techniques to safeguard transactions
and also manage the formation of additional units of
the currency.
A BlockChain is a widely disseminated archive of data
that maintains a continually-expanding register of
records fully and reliably protected from any alteration
or modification. Each block has a timestamp and link to
the preceding block.
A Crypto wallet is an encrypted electronic device that
allows an individual to make electronic cryptocurrency
transactions. Each wallet will have a public key visible
to anyone. But it can be operated by only a person who
has a private key. Transactions on the cryptocoin
network are usually anonymous.
When people send cryptocoins to each other, someone
has to keep account of who spent how much at what
time. In case of fiat money (or paper money) it is done
by banks (known as Trusted Third Parties, for which
they charge a commission).But in case of Cryptocoins,
it is registered on a ledger called BlockChain (with nil or
minimal fees).
 Electronic copy available at: https://ssrn.com/abstract=2888347 
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 3
The cryptocoin network makes this possible by
detailing all the transactions made during a certain
timeframe into a list. This list is known as a block. A
certain set of people called 'miners' verify these
transactions mathematically and register them on the
BlockChain. Those bona-fide miners who have
successfully verified the transactions are paid freshly
created Cryptocoins. This is how miners are rewarded,
and new cryptocoins are generated. This is also the
reason why no transaction costs are levied, as the
network (in the form of miners) verifies the
transactions.
Bitcoin is a peer-to-peer based cryptocoin which is not
backed by any commodity and (unlike fiat money)
carries no sovereign guarantee whatsoever.
Regulated and Sovereign Backed Cryptocurrencies
(RSBC), are government backed cryptocurrency akin to
paper currency, but in digital form. In the RSBC system,
the cryptocoins (known as NationCoins) are backed by
Sovereign Guarantee.
They are run on a highly secure Controlled
BlockChain(CBC) in which Sovereign backed
Cryptocurrencies will be transacted without any
hassles.
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 4
A Controlled BlockChain is different from a BlockChain
per se. A BlockChain is a permissionless Distributed
Database, whereas a Controlled BlockChain will be
Permission Based. The Permission here, being provided
by the Sovereign Authority. NationCoins will thus be
completely managed by the Sovereign Authority i.e.
the Government.
The earliest Central Banks were created to manage
assets and provide loans to a nation’s government. In
the digital age, we will need institutions similar to
Central Banks with a mandate to manage a nation's
digital assets. For this express purpose, we have
envisaged the creation and development of a Digital
Asset Reserve- A DAR. The DAR is part of a larger
‘Protocol’- The K-Y Protocol [1].
The K-Y Protocol is a set of rules and instructions to
implement the Regulated and Sovereign Backed
Cryptocurrency (RSBC) system. It envisages a highly
secure Controlled BlockChain in which Sovereign
backed Cryptocurrencies will be transacted without
any hassles. It will be a Controlled BlockChain.
(A Controlled BlockChain is different from a BlockChain
per se. A BlockChain is a permissionless Distributed
Database, whereas a Controlled BlockChain will be
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 5
Permission Based. The Permission for access and
operation, being provided by the Sovereign Authority.)
A Controlled BlockChain (hereby referred to as CBC)
resulting from the K-Y Protocol has several money and
non-money uses. In its complete form, it will have a
wide spectrum of applications ranging from banking,
taxation, and contracting to space research,
automation and public services.
BlockChain- A blockchain is a public ledger of all
cryptocurrency transactions that have ever been
executed. It continually grows as 'verified' blocks are
added to it with a new dataset for every block. The
blocks are added to the BlockChain in a linear,
chronological order.
DAR-Digital Asset Reserve- Organisation which will
frame policies and manage the CBC based on the K-Y
Protocol.
The Digital Assets Reserve will consist of the following
organisational structure:
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 6
The DAR will have 3 departments directly under it. The
departments will have following functions.
DATA:
It is the technical department of the DAR. DATA is short
for DIGITAL ASSETS TRACKING & ADMINISTRATION. It
will be the technical wing of DAR and Its functions
comprise setting up of the hardware and software
infrastructure to run and sustain the RSBCs. It will set
up the nodes, Hard-code the K-Y Protocol into
software, and setup the distributed computing
network. It will Manage and keep the various IT
infrastructure needed for RSBCs.
NLD: It is the National Ledger Database. It is the ledger
which will record all transactions that involve the
respective NationCoins. Its copy is present in all the
nodes. Every NationCoin, after sovereign stamping and
certification will pass through the NLD where it will be
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 7
registered. The NLD will keep an updated account of
NationCoins in existence.
If loss or other emergencies occur, it will, with DATA's
help and DAR's concurrences liquidate certain
NationCoins and remove them from circulation (Akin to
destroying old and torn currency notes).
The NLD will also act as a ledger to record other digital
assets which have non-currency applications. I.e. non-
RSBC digital assets like certificates, receipts, land
records, etc.
DAREC:
It is the Digital Asset Regulatory and Exchange
Commission. When RSBCs increase in quantity and
scope, DAREC will act as a regulator between RSBCs
and other international RSBCs of other nations. DAREC
will carry out the policies and decisions of DAR about
RSBCs and other digital assets. On the directions of
DAR, DAREC will also regulate non-RSBC digital assets
and their exchanges wherever necessary.
The DAR, in actuality contains the reserve. In fact, it is
THE RESERVE itself. What is under the DAR (NLD,
DAREC, and DATA) is demarcated from what is within
the DAR. The DAR will contain THE RESERVE, the one
entity that gives RSBCs their identity. The reserve will
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 8
provide the Sovereign Stamping and Certification that
will give RSBCs the sovereign backing. The reserve will
consist of two parts.
Holding will consist of freshly mined RSBCs which have
not yet been Sovereign Stamped. The corpus (physical
assets) will contain the money that will provide the
freshly mined cryptocurrencies their sovereign backing.
For ease of operations and record keeping, the corpus
is divided into two parts.
Non-Backed Corpus: comprises those physical assets
which have not yet provided any backing to any
NationCoin.
Backed Corpus: It will consist of those physical assets
which have already provided backing to the
NationCoin.
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 9
Non-backed NationCoins will be in Holding. It’s the only
outlet is into the SBE: Sovereign Backing Engine, which
will inscribe the sovereign stamp and give certification.
SBE is the entity which will provide security features
and authentication to the cryptocurrency.
After getting mined, the non-backed NationCoins will
be stored in to a system not connected to the internet
i.e. it is offline. It is within this isolated system that
NationCoins will get sovereign backing.
The backed corpus will have guarded safe containing
physical assets that have backed the NationCoins. The
only way they can be released outside is, when the
backed Nationcoins are destroyed i.e. if $1,000 worth
of USCoins is destroyed, then, $1,000 from the Backed
Corpus is released into the economy after
confirmation.
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 10
Backing can be done in several ways. Say $100 million
worth of USCoins are to be backed. Now a Hundred
Million $1 bills are taken and their serial numbers are
hard-coded into every USCoin. That means 100 million
USCoins, each bearing a unique serial number
corresponding to the serial numbers on the Dollar bills
are created. These 100 million $1 notes will go into the
backed corpus to be stored away safely. Now, these
100 million USCoins will enter the economy instead of
100 million $1 bills.
Sovereign Stamping & Certification
In Certification, a unique item, unique to that country
is coded into the NationCoin. For the USA it can be "E
pluribus Unum". For India- "Satyameva Jayate" etc.
These will ascertain the nationality of a particular
NationCoin. It will have a hashed 64 digit version of the
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 11
country's unique national motto with an added
number. Every one million NationCoins generated will
contain the same hash number. This hash number will
be maintained in the NLD Index registry. In future, to
check the validity of a NationCoin, this hash number is
searched in the index. If it matches, that means it
belongs to that particular batch of NationCoins.
Sovereign Stamping- Sovereign stamping will give a
unique Sovereign number to every NationCoin. Unlike
Certificate number- which is common to NationCoins
of a particular batch, sovereign number is unique for
each NationCoin. Along with NationCoin number (like
serial number on a currency note), Sovereign Number
(given by sovereign stamping) and Certificate Number
(given by certification) will provide added tiers of
security to the NationCoin.
Backing-Backing occurs when physical assets in non-
backed corpus are moved into the backed corpus in an
accountable manner. If $10 million moves from non-
backed to backed sections, then $10 million worth of
NationCoins should be added to the RSBC vault.
RSBC Vault: This is a safe area where non-backed
NationCoins, after Backing arrive as RSBCs. It is offline
and not connected to the network.
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 12
Right from Holding to RSBC vault, the entire reserve
system is isolated by using Cryptic Gate technology.
Cryptic Gates: They are isolation mechanisms which
keep the reserve offline to improve its security and
protect it from external tampering.
It follows a simple mechanism. When nbNC (non-
backed NationCoin) pool is connected to ISOLATION
SAFE, the isolation safe is cut-off from Holding. When
isolation safe is connected to Holding, it is cut-off from
nbNC pool. It is an either-or relation i.e. ISOLATION
SAFE can at any given time be only connected to one
other unit- either Holding or nbNC pool.
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 13
A similar thing happens at the other end where RSBCs
are created. RSBCs after creation go to the NationCoin
vault. We may have to use multi-tiered Cryptic Gates
with 2 or even 3 isolation pools between RSBC vault
and payment pool. These RSBCs will go into the
Isolation Pool 2 guarded by cryptic gates. [Since RSBCs
are ready-to-use currencies, we need added security
features]. The Isolation Pool 2 at any given time is
connected to only one unit- Either to RSBC vault or the
payment pool.
The DAR will have the following functions related to
NationCoins.
1) Sovereign Backing: This is the core and the only
main role of the DAR. All other functions of DAR and its
departments are submissive to this function.
The DAR will provide sovereign backing through
sovereign stamping and certification process. It will
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 14
keep the Corpus with correct account of non-backed
and backed assets in the corpus. It will make sure that
Sovereign Backing of NationCoins happens in a secure
environment in a non-inflationary way. (If, after
sovereign backing, backed corpus assets are released
into the economy, it will cause inflation due to
increased money supply in society). The DAR will have
physical, high security vaults with restricted access and
multiple checks and balances.
2) RSBC Destruction: As a corollary to the first (and
main) function, DAR will also be responsible to verify
authenticity of NationCoins already in circulation in the
economy. If there are counterfeited, fake or tampered
NationCoins, the DAR will seize them. After examining
and investigating the NationCoin(s) in question, the
DAR can destroy the said NationCoin(s). It will then
decide to reintroduce a batch of fresh RSBCs instead of
the ones already destroyed.
3) Distribution - Once generated securely in the above
mentioned mechanism, The DAR will distribute the
NationCOins as per the K-Y Protocol.
This is akin to a Central Bank detecting and weeding
out counterfeit or damaged currency notes from
circulation.
NationCoins Dr.Kartik H & Dr.Yatish S.G Page 15
CONCLUSION
The NationCoin system is based on multi-tiered steps
which enhance security and ensure steady production
of NationCoins. These NationCoins have several money
and non-money uses. The system has enough built-in
features to ensure reliable and safe system for
transaction of RSBCs. The totally new innovations such
as Cryptic-gates make sure that the NationCoin system
is highly tamper-proof and accountable. The
methodology outlined in the paper make it possible for
the Sovereign Authority to introduce Digital Currency
into the economy. Not only that, the Sovereign
Authority is assured of a steady supply of NationCoins
to transition to a fully digital economy over a period of
time.
References
[1] Hegadekatti, Kartik and S G, Yatish, The K-Y
Protocol: The First Protocol for the Regulation of
Crypto Currencies (E.G.-Bitcoin) (February 13, 2016).
Available at SSRN: https://ssrn.com/abstract=2735267
or http://dx.doi.org/10.2139/ssrn.2735267


Generation, Security and Distribution of NationCoins by a Sovereign Authority

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Generation, Security and Distribution of NationCoins by a Sovereign Authority

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