Topic: Central Bank Digital Currencies: a Threat or a Blessing? - page 3. (Read 526 times)

If the central bank is the sole issuer of money, i.e. a trusted authority, what advantage does a blockchain provide?


Bitcoin did it, right?

Tongue in cheek, of course. It doesn't really matter what the protocol rules are if the central bank is the only one running validators.


I agree with him on this. I see an overall trend towards asset tokenization occurring. That idea is very compatible with digital asset exchanges and cryptocurrency. It's a natural trajectory.

What infrastructure?The only infrastructure that cryptocurrencies need in the blockchain.Any other "infrastructures" will be totally unnecessary and would create more problems rather than solving the existing ones.
CBDCs are just a big BS.They can't help for mass adoption of Bitcoin,they could only do harm for the cryptocurrency industry,not because they are better or superior in any way,but because they will be supported and promoted by the central banks and governments,which eventually might try to destroy cryptocurrencies in order to boost CBDCs.

Central Bank currencies are nothing but a hilarious joke for cryptocurrencies, they are not cryptocurrencies!! With a non volatile nature and something backing them up , they might as well be fiat2.0

Things I can think of:

Pros:
-The government will be able to track the users
-Good option for traditional people who do not trust the cryptocurrencies and such
-Secure and hassle free transactions
-can stop Corruption
-won't charge excessive fee for transferring
Cons:
-Zero Privacy
-Same as fiat , only online
-Kills the whole concept of cryptocurrencies
-Would try and dominate the market by banning cryptocurrencies first
-Would be very volatile and stable which won't be good for short term trading much

Central bank digital currencies are really not an improvement in my perspective. They are merely digital and will not at all be decentralised. They won't even be anonymous or even pseudo-anonymous. On the contrary I think government will try to make them more transparent and visible. Moreover the real reason why people have problem with traditional currencies is the artificial creation of money which would still remain the problem in CBDC. So yes CBDC would come but no they won't be anything magical. Moreover I don't know why some experts say that bitcoin could flourish after that I on the contrary feel that governments would first place restrictions on bitcoin before they make their own currency.

Tether's a crypto that can and has changed its supply if/when it wants to. Buterin's also proposed a max supply at some point, and I'm not sure Ethereum's really been too concerned about consensus (that's how Ethereum happened right? Classic argued as you did, that it would undermine value proposition but weholders all went and proved them wrong). So yeah, if a CBDC has crypto or not, it can determine supply (fixed or not), and it can change it if it wants.

I mean, the point here isn't about the tech, but the politics. If it's centralized, which a CBDC by definition is, then it simply doesn't matter what tech it uses, it can and will change how the currency is defined when it feels like it. The tech won't make a difference. They can even disregard the tech if they get bored of it. I hereby put forward Petro.

But there's a crucial difference, one of a kind

You can't change the supply of a cryptocurrency such as Bitcoin other than by consensus. But even in that case, it would seriously undermine its value proposition. Put simply, Bitcoin will no longer be Bitcoin. On the other hand, Nixon ended the dollar convertibility to gold single-handedly, and it didn't kill the dollar. In a nutshell, just declaring that some CBDC will be hard-capped won't suffice unless there is a working mechanism in place to enforce and ensure this cap, the one which can't be removed arbitrarily on some dubious pretext

It looks more like fiat with another name, just that... I see no advantage on central bank digital currencies.
One argument was that you could transact directly with the central bank this way, without the need of third party banks, but there are third party banks which don't charge any fee and their services are really good, so what would be the advantage to deal directly with central bank?

Wouldn't that overload the public system and increase the costs of their services even more (as they would have to offer more support to customers, so more employees should be needed)?

And congratulations to you for this article, very well wroten! Success!

Will the government make use of Blockchain? Since they like to think that there are some things that should be kept as private, are they going to make use of the Blockchain and every transaction that people are making to be public on that Blockchain? I don't think they are going to do that. We can't say yet, China's CBDC would serve as an example, and we will get to understand where they are really heading with this.

And another thing I like to point out is that central bank cryptocurrency is not going to be anything like decentralized cryptocurrencies, they won't give the kind of freedom that you will get with Bitcoin. The government won't create something they can't control, they will always have control over it, and I do understand that in some ways it's important that they do have control over it. But anyone expecting something hundred percent like Bitcoin is getting it wrong.

All good on you, deisik, always happy to "welcome" another person of the words.

I do disagree that there is no need for blockchain tech (however you want to call it, I'm aware of many discussions that the term itself is erroneous), I'm fairly certain that some of the mechanisms, such changing access or ownership to existing supply, rather than moving that supply, is a good way to track and secure monetary flow, which would be very important to an issuer.

But you're right, that infinite supply is a problem, but that's also not necessarily fixed by blockchain anyway... you can still hardcode finite supply without blockchain, or, as Bretton Woods did, ensure that you only create new supply when you could back it up.

That's a topic for another article

Bitcoin has lost this battle because it is "good" money (and fiat "bad"). So even if we removed all technical obstacles like confirmation times and transaction costs as in free and instant transactions for all, this wouldn't mend matters. People would still continue to hoard bitcoins, and probably even in larger amounts

And personally, I don't believe that with a CBDC you will be able to make cross-border payments like you do them with Bitcoin, i.e. without any restrictions as if borders didn't exist. If we assume that, it would mean that central bankers went nuts. They will never let go of this milk cow (and our handcuffs at the same time) that international remittances are

Well, currently, central banks use RTGS or other techniques. Central banks will settle transactions if the transfer occurs between different commercial banks afaik. Perhaps the CBDC only renews the old RTGS system. Commercial banks still do what they do best poorly, e.g., giving loans.

What made I'm interested in Bitcoin is for remittance or commercial usage across countries. At the moment, PayPal sucks, and Bitcoin is the cheaper solution for that purpose. If CBDC can somehow make remittance and international commerce easy and cheap, we will lose these markets. Since we already lose the "buying coffee" market due to the scalability problem (the so-called trilemma), the one who stays here will be the "e-gold" and the gambling market, and it's niche.

This is not my site, I was just asked (and, well, paid) to write on a topic which is familiar and interesting to me


I don't actually think that the Bank of England deliberately distanced itself from any crypto association

Rather, they were at first kinda paying tribute to blockchain and Bitcoin, but with time, it became obvious there's simply no need for blockchain technology in a CBDC. Bitcoin may have pushed central bankers toward developing such currencies but nothing beyond that. Anyway, no CBDC has been released yet, so it is a moot point


Whatever they come up with in the end won't address fiat's major issue, which is relentless money printing ("they love to print money")

Decent article, didn't realise you'd started your own site for content, but I think the notion that CBDCs would impact Bitcoin is an old one, and disproven much earlier. The fact that the English CBDC has already firmly rejected the idea that it would even be blockchain-based (and also flatly said it wouldn't be a crypto!) already means that it has deliberately distanced itself from any crypto association will likely influence others (like the ECB) to also do the same.

I won't deny that using more transparent and programmable tech can't be a bad thing for fiat though.

There's another issue which I decided not to touch in the article

If the idea of a CBDC is utilized to its full potential, it will strike against today's bankers (not central bankers, though). Really, if people will be able to transact directly through a central bank (as Roubini suggests), what is going to happen to commercial banks? Indeed, if they are no longer needed, it will free one hell of a lot of resources (read, it is a good thing), but I don't think many bankers will be happy (read, it's unlikely to happen)


I don't agree, and I explained that point in the article. CBDCs will be a new payment system essentially, not new money. So how can they hurt Bitcoin beyond what regular fiat already does? People will see the advantages of a CBDC, but these are also the advantages of Bitcoin, divorced from the CBDC's disadvantages (most important, inflation)

True, and don't forget the pseudonymity and the borderless nature of Bitcoin. With CBDC, perhaps KYC will be mandatory, so people's financial activity can be heavily tracked... Good bye online gambling! And it's easier to convert BTC into local currencies at the moment (well, based on my experience dealing with both). I think CBDC & fintech products are competing in the same market, but not with Bitcoin.

Anyways, it is definitely not a blessing since Bitcoin will move towards a niche market if it cannot compete as mainstream everyday e-cash. Like I said:

This can be the future for real. I also saw Lithuania kinda trying to do the same thing. To celebrate their Act of Independence, the Bank of Lithuania, through LBCoin, is issuing 24,000 blockchain-based digital tokens and 4,000 physical silver collector coins. That's all using NEM's Symbol blockchain. I guess Ripple and NEM are leading the way of integrating blockchain everywhere.

As a follow-up post, many people seem to erroneously assume that CBDCs are going to be blockchain-based. Although we don't know that for certain as no central bank digital currency has been launched yet (with China presumably now testing the digital permutation of its currency), there is little doubt that these currencies will be heavily centralized (read, no blockchain will be used). As a result, it is not so much about introducing a new currency in its own right but about developing a new payment system for the existing one

And China is also looking to become a major regional player

My article published on stealthex.io. Feel free to comment

---

Central Bank Digital Currencies: a Threat or a Blessing?

Central bank digital currencies (CBDCs) have been in the rumors since 2013, with China allegedly developing in secrecy a government-issued centralized cryptocurrency to fight off increasingly popular Bitcoin. But it wasn’t until September 2015 when the Bank of England had publicly discussed for the first time the use of a blockchain-based central bank currency as a way to implement negative interest rates, and March 2016 when the phrase "central bank digital currency" had been coined.

To be sure, CBDCs have been a scarecrow for the cryptocurrency community for quite some time now. But how real is the danger? And couldn’t it in fact turn out to be a blessing in disguise for Bitcoin and its brothers in arms over the long haul? A sober look into the reality of CBDCs and their seemingly brewing stand-off with cryptocurrencies is due and invited.

A New Twist on an Old Tune

As soon as CBDCs started to make headlines across major news outlets in 2019, a new wave of soothsayers has risen. This time, Bitcoin skeptics and haters alike have gotten something looking solid on the surface. CBDCs came in handy to scare the cryptocurrency public into fear and depression for being touted as an ultimate weapon that would destroy Bitcoin. Aside from the regular fear mongering that has been following cryptocurrencies through years, there are a few apparently rational considerations that could, at least in theory, herald the autumn of cryptocurrencies.

As it happened, the first proposals on CBDCs were in fact inspired by Bitcoin and the idea of a distributed digital ledger underpinning it. Moreover, they were actually suggesting the use of blockchain technology in one way or another. Today, this is no longer the case, and the concept of a digital fiat currency as it presently stands has little to do with blockchain. But how much would then a CBDC be different from conventional fiat which is already digital almost everywhere but in a few exceptionally backward countries?

A number of mainstream economists try to address this issue, with Nouriel Roubini, a professor of economics at New York University and former senior adviser to the White House council of economic advisers and the US Treasury, leading the assault on Bitcoin. He goes as far as to claim that CBDCs are going to replace most private digital payment systems like PayPal and its likes by allowing anyone to transact directly through the central bank. That would reduce the need for cash and make traditional bank accounts along with digital payment services obsolete and unnecessary.

In his view, cryptocurrencies are no more than a pile of overhyped blockchain technologies promoted by a bunch of “starry-eyed crypto-fanatics”. Roubini reasons that once CBDCs arrive, they would instantly displace cryptocurrencies, which, as he senses them, are far from scalable, cheap, and secure, nor they are actually decentralised and anonymous according to him. Whether his prophecy of an impending doom for crypto has any real ground remains a matter of scrutiny, which takes us to the next part of this essay.

Much Ado about Nothing

The argument in favor of CBDCs taking over cryptocurrencies is essentially based on misunderstanding Bitcoin’s primary value proposition. Although the advantages and benefits of CBDCs may be real, to a varying degree, the idea of a central bank digital currency doesn’t part ways with the original idea of fiat money itself. In other words, CBDCs will always remain a somewhat enhanced or updated version of fiat. As such, every major flaw or fault that fiat has ever revealed can be rightfully ascribed to this form of a centrally-controlled currency.

Most importantly, CBDCs don’t seek to address the arbitrariness of their governing bodies, that is to say, central banks, in the majority of cases. Whatever has been said positive toward CBDCs can be reversed through the misuse and abuse by the monetary authorities. It is just a matter of time till they start turning advantages of CBDCs into disadvantages as has always been the case in the past, but now more efficiently and with a vengeance. And this is in stark contrast to Bitcoin which sets forth a distinctively different governance model by removing any central authority from the equation.

This point has been reiterated and emphasized by many notable and well-known figures in the cryptoverse. For example, Barry Silbert, the founder of venture capital firm Digital Currency Group and a major investor in the blockchain space, strongly believes that central banks won’t be capping the supply of CBDCs because they “love to print money”. In this manner, CBDCs aren’t going to fix broken monetary policies carried out by most, if not all, central banks. Then we are instantly back to square one.

And that comes down to a simple but time-proven truth that fiat currencies, no matter what form they may take, are set to depreciate and lose value over time. There is no way around this, and CBDCs will be of little help here, if ever. On the other hand, these currencies allow central bankers to gain more power over financial activities of the general public by requiring common people to use the financial system based on a CBDC, and, by extension, subjecting them to other forms of control in their efforts to maintain state supremacy over money – in addition to its costs and restrictions.

Put shortly, digital currencies issued by central authorities cannot on their own pose a real threat to Bitcoin and undermine its value proposition coming from its decentralized nature and capped supply, especially in the long term. But could it play out in an altogether different direction? Could CBDCs actually help, in some convoluted or even controversial way, non-central bank currencies such as Bitcoin, and contribute to their mainstream adoption and wider acceptance? As it turns out, it is not totally impossible, and this might be the most interesting piece of the CBDC puzzle.

A Blessing in Disguise

Now that we established that CBDCs are unlikely to hurt Bitcoin, it is time to explore the opportunities they could offer the crypto space. Barry Silbert says that the efficient and cost-effective infrastructure every financial institution will have to build in order to safely store and support CBDCs happens to be the same infrastructure that could be used to transact with and provide support to cryptocurrencies. Consequently, Bitcoin will benefit in the long run from the world’s central bankers issuing their own digital currencies – when these currencies start to fail at the end of the day, which is inevitable with any form of fiat money as many economists claim.

At a fundamental level, CBDCs, if they kick off for real, are set to compete not so much with Bitcoin and the rest of the pack but rather with other central bank currencies, digital or otherwise. Whatever nation launches such a currency first, the others will quickly follow. You don’t exactly need a master’s degree in economics to understand who will benefit most from the dog-eat-dog fight that will without doubt ensue, just like fiat currencies benefit from cryptocurrencies competing with each other.