This is a guest post by Sunil Aggarwal. He runs an online learning solutions company, Theory Frames, and has taught about Bitcoin and blockchain at the National Academy of Legal Studies and Research in Hyderabad, India.

The global monetary system has reached a unique point in its history. The money that defines it is undergoing a serious shift. 

At one time, there were nearly 200 national currencies, with the current figure just above 180. For a national currency to become global money, it has to undergo conversion to other currencies at the prevailing exchange rate. And outside its national borders, it is subject to the laws of supply and demand. A Bangladeshi taka would rarely be demanded on the global market as compared to the U.S. dollar. So for the global population, labor output is not measured in reference to any actual universal money, but by the power centers of different political regimes. 

This notion of fiat money has dominated the entire 20th century and continued to do so in the first decade of 21st century, until the emergence of Bitcoin. There was no political subjectivity involved in Bitcoin; it was based on the mathematical design of issuing currency as well as settling payment transactions through a continuously updating chain of distributed ledgers called the blockchain. 

Bitcoin successfully solves the issue of double-spend that is a typical problem of digital money. It was quickly accepted by people because it was money, a payment rail and a messaging system all-in-one. It ensured both privacy as well as the security of a unique digital signature to every user without depending upon any intermediary. 

In less than eight years since its emergence, Bitcoin has grown to nearly 10 million user wallets, a daily transaction range of more than 200,000 and a market cap of more than $6 billion and rising. 

It's not just Bitcoin; this math-driven logic of currency has been improved by many others, and there are now more than 600 Bitcoin-like currencies. Four of these have market caps of $100 million, 10 have market caps of over $10 million, more than 50 have over $1 million and more than 150 have over $100,000. 

Not only is this market cap of new currencies rising, but their daily transaction graph is increasing. It is expected that by 2020, there will be more than a billion cryptocurrency transactions per day as smartphone sales show a volume of 4 million units per day. 

A world where everybody can send free email or SMS to every other human being on earth would also expect a currency that follows similar ease of transfer. That is where a politically fragmented notion of money faces a serious challenge of evolution.

But to go from a cash-based issuance system to a global seamless payment system requires a big political jump. It would require nations to raise their "interaction capacity" to the equivalent level of the permissionless regime of Bitcoin and many other cryptocurrencies. That is what is confusing central banks and presenting them with three big dilemmas, the answers to which will determine their futures.

The First Dilemma: Equaling the Reliability of Cash

All central banks have issued a large amount of cash to their populations. For example, Reserve Bank of India has created a monetary base of more than 15 trillion rupees to date. This cash component makes up nearly 12 percent of the total money supply at present. 

People trust this cash because this is the best notion of a bearer asset they have at present. Currencies working within borders are fungible as well as anonymous, and they are backed by statutory guarantee. 

Some currencies are acceptable abroad, too. In such a case, the problem is how to recover this huge amount of cash and to replace it with a digital vault of cash. It would mean the creation of an equally reliable digital infrastructure of currency issuance and payment infrastructure. It would require that not only every citizen have a smartphone or a mobile digital device, but that he or she should also be in a position of using it with efficiency. 

In a country with more than 1.2 billion people, this is a huge challenge. It would require that country to have a highly authentic register of citizens' digital identities. And not just that – the issues of privacy need to be sorted out before people can be convinced to shift to a digital payment infrastructure. 

Even a small country such as Sweden that has nearly replaced cash with a digital payment system doesn't expect to do away with cash completely before 2025. Eliminating higher denomination currency notes has proved to be a very difficult task for central banks. The currency printing and distribution cost alone for RBI has been the equivalent of more than $5 billion for the years 2014-15. 

If you add bank branches' management costs, the overall inefficiency of the system brings with it a huge burden of maintaining the legacy structure of cash. The desire to go cashless has good intentions, but having citizens accept it as easily as they have accepted Facebook is a dream that may not become reality for most countries.

The Second Dilemma: Non-workable Structures