As Central Bank Digital Currencies (CBDC) are being developed on a global scale, Bitcoin is emerging as the savior & champion against governments’ attempt to use blockchain for their own malintent.
Ever since the inception of Bitcoin in 2009, the crypto industry’s anticipation combined with a varied level of concern has been what would happen when the world’s central banks enter the digital asset space and start creating their own digital fiat currencies? Given the recent moves by some of the largest central banks in the world, we are likely about to find out.
Central banks on a global scale used to snub and ridicule Bitcoin, cryptocurrencies and other digital assets for many years, often referring to them as scams, frauds and a tool for criminals. But the winds have changed dramatically over the past year in particular, as many countries around the world are either in the development and testing phase or exploring their own Central Bank Digital Currencies, or CBDCs as they are often called.
CBDCs are essentially a digital equivalent of national fiat currencies, which means they would be an extension of what fiat currencies represent and function as today, with centralization, government oversight and the ability to print new fiat money at an unlimited supply as their main components.
Central Bank Digital Currencies in development worldwide
China is currently in the lead globally on the development of its digital yuan, as the People’s Bank of China (PBoC) is already testing the country’s digital currency in several regions throughout China. The initial trial included four cities in Shenzhen, Chengdu, Suzhou and Xiongan, and the pilot program then expanded to nine cities, including major metropolises like Guangzhou, Hong Kong and Macau. On November 2, the PBoC revealed that the testing phase has already processed over 4 million transactions, amounting to more than 2 billion yuan, or $300 million.
On November 12, the president of the European Central Bank (ECB), Christine Lagarde, said the ECB will reach a decision on whether to release a digital euro early next year. Meanwhile, the ECB is currently seeking input and feedback from European Union citizens on how and what a digital euro should and would look like.
Brazil’s Economy Minister Paulo Guedes stated on November 5 that Brazil will issue its own central bank digital real, or CBDC. The Banco Central, the central bank of Brazil, has previously indicated that the digital real would initially be used mainly in foreign exchange transactions, both domestically and internationally, and that its goal is to launch its CBDC in early 2022. On November 16, Brazil’s Central Bank launched “Pix”, a state-owned digital payment system, with over 750 companies already signed up to Pix to accept and offer instant payments through the app.
On October 13, the Bank of Russia released a consultation paper on the development of the digital Russian ruble, confirming their intention to develop their own CBDC. They stated that the Russian digital ruble would function as an “additional form of money alongside cash and non-cash.”
Meanwhile, US Federal Reserve economists released a report on November 9 that the Fed is exploring the “intrinsic” value drivers of CBDCs and a potential future digital dollar. The US government has been widely criticized for moving too slow on cryptocurrency regulation, and it currently is years behind China on developing its own CBDC, as Beijing is already clearly in advanced testing phases of its digital yuan.
But before we attempt to answer whether CBDCs are a major threat to Bitcoin and cryptocurrencies in general or a sign of changing times for digital asset adoption, we need to understand the fundamental difference between a cryptocurrency like Bitcoin and the future digital national fiat currencies in the form of CBDCs.
Decentralized Bitcoin (BTC) vs Centralized (CBDC)
The core principle of Bitcoin is its decentralized nature. Instead of confirming transactions through a centralized bank or ledger, the Bitcoin network spreads out the ledger on thousands of computers worldwide and the network confirms transactions as a whole.
By using decentralization as its core principle, Bitcoin and other cryptocurrencies like Ethereum (ETH), empowers individuals by ensuring non-censorship and personal ownership, while removing a central point of failure of the entire network.
This is in stark difference to how banks and central banks function today, which are centralized entities in all its forms. Even if future CBDCs would utilize blockchain technology to support their new digital currencies, the goal of central banks would still be to attain further control on financial oversight and monetary decision making, as well as use digital fiat currencies to gain further access to citizens financial transactions and private data.
Finite supply vs infinite supply
Bitcoin’s supply is finite and capped at 21,000,000 BTC to ever be created. No more, no less. Additionally, Bitcoin has a deflationary financial policy, which means that new BTCs that are minted on a daily basis on the road to 21 million BTC is reduced and halved every four years, through a process called halving.
In contrast, central banks worldwide are increasingly printing new fiat currencies in the form of new dollars, euros, pounds and yuan. This is particularly true in these strained times of coronavirus lockdowns and global economic downturn, as government relief packages require the printing of new currencies to sustain these financial measures.
The obvious result of printing new money is that you devalue the currency at hand. This measure will continue with CBDCs, and the infinite supply of central bank-issued fiat currencies is a further strengthening case for Bitcoin in the fight against future digital fiat currencies.
Anonymous vs Public Oversight
One of the main benefits of Bitcoin and other cryptocurrencies is that they protect the user’s identity through cryptography, and keeps the user anonymous when sending or receiving transactions. As CBDCs will function as an extension of today’s fiat currencies, government control and oversight is a prerequisite for its functions.
Therefore, the protection of privacy is not on the CBDCs agenda, but the opposite is true. Launching digital national fiat currencies based on blockchain technology and trying calling them cryptocurrencies, without actually granting citizens the privacy and enshrined freedoms a truly decentralized digital currency like Bitcoin provides, is simply misleading and a move filled with malintent.
Central bank digital currencies are becoming a reality whether we like it or not. Their development will only accelerate over the coming months and years as governments are coming to the realization that the future of money and currencies are digital, due to its cost-efficiency, technological advantages against today’s legacy central bank system and superior oversight ability.
However, CBDCs are not only an inferior centralized alternative to the decentralized nature of crypto today, but are also years away from becoming a reality in daily life and are further years behind the cryptocurrency space in fielding products, wallets and services that cater to users’ wants and needs. In conclusion, CBDCs are not a direct threat to Bitcoin and decentralized cryptocurrencies in existence today, but instead a clear sign that central banks are looking to adopt a technology that has captivated tens of millions of people around the world.
Instead, the ongoing development and eventual launch of central bank digital currencies will likely also serve to shed more light and raise awareness of truly decentralized cryptocurrencies like Bitcoin to the general public.
The main problem for central banks is that the development of CBDCs is essentially a last remaining attempt to maintain control over their citizens and deepen the government oversight of their financial transactions and holdings. Meanwhile, decentralized cryptocurrencies continue to grow in influence, size, usability and global reach, offering individual freedom, empowerment and ownership on a global and borderless scale.
Klever empowers decentralized cryptocurrencies
As the values of true decentralization are one of the guiding principles of Klever.io, we enable our users to safely store, send, receive and charge Bitcoin and other truly decentralized cryptocurrencies in a safe, simple and intuitive way, using peer-to-peer technology.
While Bitcoin is the clear savior and champion in the battle against the central banks’ attempts to create a new digital form of their already overworked money printing machines, Klever is the key and safe haven to this decentralized economy.
Director of Communications and Marketing at Klever.io