Already there is a patent pending "Systems and methods for managing and processing transactions where legal tender status may be established for cryptocurrencies". This would allow cash hungry governments at the national, state, and even local level to obtain income from cryptocurrencies without financial risk. Russia and Turkey have floated the prospect of a national cryptocurrency and Venezuela has actually launched one called the Petro. The price of one Petro is pegged to the price of one barrel of Venezuelan oil. The main purposes of the Petro were to evade sanctions and raise desperately needed cash. The Venezuelan government has already defaulted on debt so trusting Venezuela to honor its promise with regard to the Petro would seem no less risky than trusting it to pay interest on its bonds.
The challenge all cryptocurrencies face is attracting miners who use the crypto of choice for transactions, as a store of value, or as a speculative instrument. There is a need for each crypto to devise some feature that allows for a market share gain over others. It is presently unlikely that a crypto directly issued by a government or a central bank would receive immediate wide acceptance since the major original attraction of cryptos was that they were independent from governments or central banks. However, a crypto that had some element of legal tender status would clearly have a competitive advantage over its competitors.
We think the eventual replacement of paper money with a digital crypto could involve municipalities issuing what might be described as a put warrant. This is a security that gives the holder the right (but not the obligation) to sell a given quantity of an underlying asset for an agreed upon price on or before a specified date. A typical put warrant issued via blockchain methodology by a municipality would allow the holder to use specific cryptos to satisfy obligations to the government at a specified exchange rate, which is the strike price.
A example of such a transaction might be one in which a municipality issues a crypto put warrant with a market price of $1000 and a strike price of the warrant at $100. This gives the holder of the warrant the right to put to the government one unit of cryptocurrency and be credited with $100 as payment for taxes. This theoretical warrant is far out of the money and would likely never be exercised. The worst case for the municipality is that the crypto's value falls to zero sometime in the future. This would cost the municipality $100 at some future date as the warrant reduces the holder's tax burden by using one unit of cryptocurrency to satisfy all or part of its obligation to the municipal government. However, the municipality had initially received more than $100 in return for issuing the warrant so it will always benefit or at worst break even. The cryptocurrency that first aligns itself with a municipal government will likely be a winner during the period that the transition to a digital currency gradually occurs. That particular crypto would enjoy a first mover advantage in a new world monetary order..."