INTRODUCTORY NOTE
We have seen many wars over the years of history and it appears there may be another one brewing. Although this one may play out without one battle or gun even being fired. We are talking about the currency war. This is not centralized versus decentralized. It is each country racing to be the leader in developing a Central Bank Digital Currency, also known as CBDC. While many governments around the globe initially dismissed cryptocurrency with the rise in popularity of Bitcoin and many altcoins, now they are paying attention as they see the world’s appetite for change.
WHERE TO START?
We live in a digital world now where many transactions happen without the need
for a physical currency and the recipe is brewing for a rise of Central Bank Digital
Currencies. Though many major countries have been spending resources to research
the feasibility of CBDC’s, the Bahamas launched the first CBDC, the Sand Dollar, on
October 20, 2020. Several other countries, including China, have test or pilot
programs in the works, but the Bahamas was the first to make it available
nationwide there.
Transfers of the Sand Dollar are made from user's mobile phones as 90+% of the
Bahamian population use mobile phones. The currency can be used at any merchant
with a “Central Bank” approved e-wallet. Chaozhen Chen, the assistant manager of
eSolutions at the Central Bank of The Bahamas, was quoted in a recent
Cointelegraph interview as saying the CBDC would help provide “access to digital
payment infrastructure or banking infrastructure” for underbanked and
unbanked residents. China is not far behind with development of the digital Yuan.
Recently, China did a $1.5 million (10 million Yuan) giveaway test of their digital Yuan
in the city of Shenzhen as part of their pilot program. It was distributed to 50,000
residents in a lottery style giveaway, and can be spent at any of the over 3300
merchants in Shenzhen’s Luohu District. Any unused money not spent by deadline
would be taken back. Their most recently reported stats had over 100,000 personal
digital wallets and over 8000 corporate digital wallets. The UK and Canada have
made it no secret they are exploring the possibilities of a CBDC as committees and
resources have been thrown at researching this. The USA has teetered back and
forth on their stance on the creation and implementation of a CBDC US Dollar.
The USA wants to see other countries roll CBDC’s out and learn from those countries'
mistakes before fully embracing the US Dollar. This is important for the entire world
as we could see the dominance of the US dollar fall if they fail to adopt and innovate
in this space.
HOW WOULD THIS ACTUALLY WORK?
Before we dive deeper into CBDC’s impact on cryptocurrency, we need to understand
some of the principles of true cryptocurrency. Sure, any entity, including
governments can create a digital currency, but will it meet the litmus test of true
cryptocurrency, or will it be a Frankenstein-ish type creation that resembles
cryptocurrency but is in no way the same. As defined by Andreas Antonopolous, a
very well known proponent of Bitcoin and cryptocurrency, there are 5 pillars to
open blockchains which in turn is why I use the term “true cryptocurrency.” Even if
there is a distributed ledger CBDC’s run on, if it doesn’t meet the 5 pillars then it will
not be a true cryptocurrency and not our best option to transact. The 5 pillars of
open blockchains are Open, Borderless, Neutral, Censorship Resistant, and Public.
These systems that meet these five pillars thrive off of decentralization, immutability,
and transparency. Many governments throughout history have fought to have a
system of checks and balances which eventually becomes corrupt due to the lack of
decentralization and transparency.
True cryptocurrencies will operate on decentralized systems and the transparency
and trust comes in the form of the code, putting trust in absolutes like math and
code, rather than in people. Open means anyone can use or open to all. With many
regulations, we constantly see systems that exclude many people from participating
so we will probably see most CBDC’s will not be open. Borderless is easy to
determine as each will want to use their own as they develop. I doubt after seeing
how history was written since the US Dollar was pegged as the world’s reserve
currency, most countries will want to opt for more power from their own CBDC
rather than another country’s CBDC. So most CBDC’s will not be borderless. They will
be restricted. Neutral is also something they will not be.
The CBDC itself may be neutral in theory only, but you can bet the system that it
runs on will not be neutral. It will be designed as a system of surveillance and
control that will be packaged as a way to protect the people. Don’t be fooled. This
will be so those who are greedy and power hungry can remain in power and control
with the new systems. CBDC also will have no essence of censorship resistance
for the same reasons we just mentioned. It will be a heavily censored system that
will be able to monitor and dictate when and how you can spend your money.
Public in terms of the network will also not be the case. It will be a private and
closed network, but not private in the way it benefits the citizens that use it. It will
be closed and private to those in power where the greed and corruption has
existed for years and will continue to try to maintain its grip on society.
Cryptocurrency has the benefit of peer to peer transacting without the need for a
middleman. You can bet that with CBDC’s there will be many vampire companies
pop up or pivot to service this platform, just as Visa, Mastercard, and many banks
latch on to these systems to generate revenue by charging fees.
HOW WILL CBDC’S IMPACT THE CRYPTOCURRENCY
MARKETS AND ADOPTION?
Now that we’ve looked at what CBDC’s are and how they differ from cryptocurrency,
we need to get to the meat of the discussion that most people are asking: how will
CBDC’s impact the cryptocurrency markets and adoption? Will a certain CBDC be a
Bitcoin killer or make 99% of cryptocurrencies worthless? Absolutely not. The
following view is only my opinion based on my own understanding and research. I
challenge you to evaluate my opinion, but then do your own research to come up
with your own conclusion. Only time will tell in this, but here is what I think will
happen.
There may be some fear and uncertainty in the cryptocurrency market as countries
start to roll out their CBDC’s. It may cause some initial volatility as people who don’t
truly understand all the true benefits and freedoms allowed with what I call true
cryptocurrencies. Most people don’t question systems as long as they are “working,”
but we have all seen countries where those abuses of power have brought that
country’s financial systems to halt.
This has happened in places like Venezuela, Zimbabwe, Argentina, Cyprus, and
Turkey to name a few. However, after the initial fear and uncertainty for
cryptocurrency investors, CBDC adoption should be a good thing for the overall
adoption of true and decentralized cryptocurrencies like Bitcoin and others. As more
people who were skeptical to digital items having value start to realize how much
better these digital systems can work, they will also realize that there are better
options and better technologies than CBDC.
Governments have never been one to lead technology and innovation, but instead,
they usually lag. Therefore, by the time CBDC’s go mainstream, the technology with
cryptocurrency and decentralized finance will be way more advanced and user
friendly than the CBDC’s.
Not only from a consumer adoption, but as businesses acclimate to accepting digital
currencies, they may also be more open to accepting either all cryptocurrencies or at
least the main decentralized ones. The majority of the population is resistant to
change until their hand is forced or they can see the benefits outweighs the
discomfort of learning. If there is any interoperability between the payment systems
of CBDC’s and cryptocurrencies, we could see adoption speed up even more.
Another factor to consider is what we touched on in the first paragraph. If there is a
heated currency war between countries launching CBDC’s, we could see extreme
volatility in the values of each CBDC among each other as exchange traded pairs.
This could lead to rapid inflation sped up on top of inflation rates from reckless
printing and monetary policies executed before the emergence of CBDC’s.
This would cause a further decoupling of the cryptocurrency market from traditional
markets as savers and investors look for a “safe haven” to store and/or protect their
wealth. People would flock to cryptocurrency like never before if that were to
happen.
CONCLUSION
In conclusion, there is so much speculation on what could happen with the
emergence of CBDC’s. It is inevitable that those in power will want to remain in
power. Governments are also all dealing with failing monetary policies in relation to
the mass printing and inflation from that printing of their fiat currency.
Cryptocurrency will continue to develop and evolve as the masses get tired of the
abuse of power by governments and banks. People will continue to move towards
currencies that benefit the people and protect their freedoms and basic human
rights. Only true cryptocurrencies can give you that, not CBDC’s.
The report was written by Blockchain Wayne and NewsCrypto Analysts team.
