Digital currencies such as Bitcoin have become such a talking point across the Internet that even governments are starting to look at alternatives to paper and coin fiat money. The Royal Canadian Mint is planning to get into the mix with their own digital currency called Mint Chip—possibly right on the heels of removing pennies from their coin economy. Alongside the announcement of the release of Mint Chip, the Canadian Mint is also reaching out to developers to work on applications that will interface with it on platforms such as Windows, iOS, and Android.

However, looking at the intent behind Mint Chip, much of the Bitcoin community (and digital currency community in general) has viewed this “evolution of money” with a fair amount of skepticism.

An article in Forbes cites Bitcoin analyst, Vitalik Buterin, speaking on his blog about the benefits and flaws of Mint Chip in relation to Bitcoin. For the most part Buterin sees that there’s some benefits to Mint Chip, such as instant secure payments and no worries about double-spend, but there are some flaws that don’t take into account why digital currency is at the prominence point that it is:

There are other aspects of the system that Bitcoin users are likely to object to. The currency creation model is centralized: value is originally injected into the system by the Royal Canadian Mint and customers can purchase value to spend by going through trusted brokers. The system is designed to be able to force upgrades, giving the Mint the power to introduce onerous tracking features over time if it so desires. Innovative means of value storage like paper and brain wallets are out of the question, since nothing can be done without the physical chip, and it’s impossible to have an online wallet that does not require trusting the provider.

Echoing the final issue that Buterin brings up in the last sentence, an article in Business Insider brings up two elements of Mint Chip that Bitcoin doesn’t have to worry about: specialized proprietary hardware and centralized banking features.

Mint Chip has both a flaw and a benefit being tied directly to the Canadian Dollar and their economy. It will become a fiat digital currency and act essentially like any other card connected to a bank (just with digital currency instead of trading numbers representing CDN.) As a result, the Mint Chip evolved money will just be another fashion of state money.

The sort of individuals who drift towards Bitcoins aren’t just looking for a way to translate their money into digital form; they’re seeking a way to open up new avenues for trade that are separate from state-controlled currency. In this fashion, the Bitcoin economy is led generally by the people involved in the market, rather than it depending fiat on a state currency. To me, this is also both a flaw and a benefit: this is part of the reason why Bitcoins are seen as hugely volatile and without much grounding or anchor—it’s also why hacks against exchanges like MtGox and the tussle between Tradehill and Dowalla can affect the currency’s outlook.

Mint Chip won’t be replacing Bitcoin in the hearts and minds of the community who use the currency.

It might supplement the methods that people use to trade Canadian Dollars in Canada—if it manages to get suitably secure hardware and a highly present network for citizens to hook into—and that could be a good thing for Canada. Citizens might see this as useful because it will mean that they won’t have to go through private banks in order to move their money, they’ll instead go to the state to validate their digital currency (which is where such currency gets its value anyway.)