Central Bank Digital Currencies Won’t Zap Desire for Bitcoin, It’ll Just Increase it: LongHash Report
For what is literally the first time in his presidency, Donald Trump took to Twitter with his usual non-filter approach to talk specifically about Bitcoin and Cryptocurrencies. But what sparked his latest outburst was related to Facebook and its own attempt to issue an iteration of money.
So what was it that Trump said about Bitcoin and Crypto? It wasn't good –
“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behaviour, including drug trade and other illegal activity.”
While Trump's activity on Twitter has, in the past, directly or indirectly affected the performance of stocks in the US, the impact was the opposite with Bitcoin – with Google searches of the same increasing remarkably.
But to say that this is a wholly American phenomenon would be incorrect; it's part of a far broader, globe-trotting trend. With governments all around the world reacting in their own in/secure ways to cryptocurrencies.
Those more secure playing more a hands-off game (France and the UK), others launching their own digital currencies. Examples of this include the e-kroner of yesteryear, and the People's Bank of China (PBoC), which confirmed that Beijing currently has a digital iteration of the Yuan in development
These developments come off the back of a stamp of approval given by Agustin Carstens. Working as the Bank for International Settlements (BIS), which is based in Switzerland. Carstens reportedly provided central bank digital currency over the course of this week.
During the extent of an interview with the Financial Times, Carsten, who has also gained a reputation as a highly influential banking tycoon, gave greater insight into the kind of ‘active' support that his company is providing for central banks in their steady engagement with digital money.
Carstens went so far as to suggest that central bank implementations of digital currency might “be sooner than we think” with selected banking partners being the first to test it out as a payments solution. With that said, there certainly is a market for CBDC's, making it far more of a practical asset, and more of a crucial element that banks should get to work on sooner rather than later.
In order to further support banks looking to incorporate some kind of digital asset, the BIS has since launched its own financial technology hub in collaboration with both the Swiss and Singaporean governments.
In conjunction with this new hub, BIS also published its recent in depth report on the world of fintech, providing a comprehensive insight into how this rapidly emerging sector can ultimately improve the efficiency of businesses, further expand the level of financial inclusion, providing a greater efficiency to the national economy, and even goes into the kind of potential threat that these certain products can pose for fiscal stability and data privacy.
There have been other centralized banking groups that have since demonstrated a significant degree of interest in getting involved with cryptocurrencies too. Among them is the managing director of the International Monetary Fund (IMF) – Christine Lagarde. Lagarde commented that “cryptocurrencies are shaking the system,” during the annual World Economic Forum in Davos, where she made the comments to reporters.
Nouriel ‘Dr Doom' Roubini Believes CBDCs will Render Cryptos Redundant
With the concept of Central Banking Digital Currencies moving out of the concept phase and edging closer towards practical application, there have been a number of economists and analysts starting to more confidently give their opinions on the matter.
Among these is the New York University professor and Economist – Nouriel Roubini – who has made a name for himself as an individual with some very explicit distaste of Bitcoin; as we've seen from his comments during a testimonial last year, but also more recently as a follow-up to Trump's comments this week:
“1st time I agree with Trump: no country, not even USA skeptical of excessive regs, will allow the wild west scams of unregulated crypto with no AML/KYC, being a bank or money servicer with no bank license/regs. Get used to it u crypto fools/scammers. Start to comply or disappear!”
During an earlier column he published for Project Syndicate back in late 2018, Roubini proudly displayed his disdain for cryptos while acclaiming that the emergence of CBDC's would ultimately “close the door on crypto-scammers.”
“CBDCs [are] likely [going to] replace all private digital payment systems,”
Roubini wrote. Before going on to explain that, unlike the already existing retail banks and financial platforms like PayPal, who have services that currently suffer from some outstanding friction such as failed transactions, high barriers to entry, as well as higher transaction fees.
The introduction of Central Bank Digital Currencies would introduce a more “efficient and cost-effective” at operating as an intermediary and providing far more efficient lending.
“By allowing any individual to make transactions through the central bank,” Roubini wrote,
“CBDCs would upend this arrangement, alleviating the need for cash, traditional bank accounts, and even digital payment services.”
Roubini goes even further than that to suggest that these same CBDC's would ultimately remove any kind of investor appetite for them, pivoting instead to the centralized assets and “not scalable,cheap, secure, or actually decentralised” cryptocurrencies such as Bitcoin, simply by this misplaced belief that centralized banking holds some kind of better, more trustworthy alternative, when that's been categorically proven false.
Cash is Dead, Long Live Cash!
There is a great degree of logic to the argument that Roubini makes. But the problem is, along with the fact that centralized financial and banking institutions are more guilty of illegal activity than Bitcoin. It misses out the fact that there is a major need for a fully private kind of money – such as Bitcoin.
There's no question that there's a desire for the issuance of some kind of central bank digital currencies, but in concert with this, there will be an ever-growing need for individual digital currencies.
Digital transactions are and have been, getting better over the past few years. PayPal transactions, for example, go through with relative ease and speed; in Canada, users can e-transfer money to other users at a relatively low cost without any fears of getting your transfer arbitrarily stopped.
These kinds of transactions do come with a number of exceptions and limitations, however. There are a number of banks that actively deny any kind of transactions related to cryptocurrency exchanges. Some of the more prominent of these being Visa and Mastercard, which both very famously banned any transactions to Wikileaks. This compelled the anti-establishment news platform to go fully crypto, accepting donations in Bitcoin to address its issue of funding.
While it can be contended that these CBDC transactions will provide a quicker transaction time, it's more likely that they'll be subjected to far more scrutiny from regulatory bodies and government interference. This raises some further questions about the kind of financial privacy that users would have using these kinds of currencies. The less they have, the more likely these users and investors will be inclined to move towards a more anonymous kind.
This concern over financial privacy is more than just speculation – with the fast decline of paper cash in countries with more advanced digital payment solutions, it's looking more and more likely that this . will be the case.
All we need to do in order to find a living case study is to look at the People's Republic of China. It's here that there's been a dramatic rise in the number of people going cashless and cardless, making use of, what is being referred to as the ‘super app' – WeChat.
WeChat has gained this reputation thanks to being used for anything from messaging, payments, financial services, games and more. Along with WeChat, Alibaba's own financial solution – Alipay has been emerging as a major player too, and it's services like these that have proven and will continue to prove to be a highly competitive and popular medium for financial payments.
Considering the fact that Chinese citizens make use of Alipay and WeChat for almost every kind of payment in their daily lives.
It's with these kinds of dramatic shifts that have since led to the People's Bank of China revealing that it is getting to work on creating its own digital currency this month. This is according to reports provided by more local news outlets such as the South China Morning Post. Should the Facebook cryptocurrency – Libra – manage to gain meaningful traction, then the PBoC will start to move forward with greater gusto in launching its own digital asset.
In addition to this, the central bank has also reportedly managed to receive official approval from the Chinese State Council, allowing them to move forward with the project.
Cash is undergoing a decline that is only increasing in speed as the years go on. The implementation of CBDC's will force governments to more seriously consider adopting digital cash solutions and drop physical cash. This is according to the Deputy Governor of the Bank of Japan – Masayoshi Amamiya – who said the previous during an interview with Reuters.
So where is the concept of digital currencies being seriously considered? Some of the countries include the likes of Japan, Sweden, Denmark, all of which hold negative interest rates. The reason these countries are looking at digital solutions is because of the increasing number of consumers hoarding cash in light of depreciating returns on investments.
In hoarding these cash sources, central banks are rendered incapable of taking full control of the domestic money supply, causing some unintentional risks and issues. With the inclusion of CBDCs, these same risks don't exist, due to the continued grasp that these central banks have over these assets.
Central banks can effectively withdraw funds from any accounts held by users whenever they need to, which is why there has bee a particular desire to adopt these kinds of currencies. But the fact that these central entities have this power should foster suspicion amongst users.
Where Central Entities Seek Control – The Need for Bitcoin Will Persist and Grow
China has been at the forefront of technological advances in the field of digital payments, currencies, and with facial recognition and Artificial Intelligence more controversially. All we need to do to see that is to take a closer look at the ‘Social Credit' system that the government has introduced.
Through this system, citizens are uncomfortably monitored, with outside activities, social media activity, along with their financial transactions being monitored in order to provide a social ‘score.' With lower scored effectively violating their human rights, by preventing them from flying overseas or accessing certain services, jobs and homes.
Having built up a reputation as a firm educator and open advocate for Bitcoin, Andreas Antonopulos has compared China's actions, along with the kind of power that governments are trying to obtain through centralized digital currencies as being aking to a violation of free speech and expression.
Money, he contends, is a language, and through the process of making certain kinds of transactions illegal, or curring businesses and even people out of infrastructure is criminal, and a growing problem in today's society.
Rob Paone professes to this growing totalitarianism that comes with centralized digital assets. Known as a reputable crypto personality, and advisor of AirSwap – an Ethereum based company, Paone took to Twitter to state the following:
“going cashless means a financial surveillance state.”
While government surveillance has all the hypothetical potential to ‘protect' citizens from criminals, according to some. This is thwarted by the fact that all surveillance does is identify that the crime happened, instead of protecting anyone.
What surveillance represents, is something less totalitarian and Orwellian, according to the crypto researcher Has and Three Arrows Capital's Su Zhu. Both writing intensively about the prospects for digital cash:
“The specters of terrorism and organized crime are often cited [as justifications for survillence]. But this makes the naive assumption that governments itself [sic] can never become evil.”
The two go on to argues that having a cashless society renders the state less susceptible to tyranny, bureaucratic and governmental over-reach and authoritarian policies of de-banking. While this is an interesting piece of research, present experience regarding the ineptitude of governmental policing, bureaucratic incompetence and over-reach have long since been made apparent.
With all of the danger of a totalist surveillance state, Bitcoin is in the perfect position to be an iconoclastic force of the individualist good. Right now, the majority of public blockchains use a proof of work consensus; meaning they can be mined for data.
And with crypto analytics companies such as Chainalysis, which has worked with a range of governmental institutions and regulators in the past, these entities are capable of building a web of data around these transactions, and can even find transactions where perpetrators inadvertently reveal themselves.
Even while this can be the case thanks to private analytics. With the proper combination of techniques and tools, such as those provided by tumbling / mixing services and CoinJoin, Bitcoin still has the potential to operate as a private kind of money. Within a very extensive post published on the crypto exchange, BitMEX‘s blog back in the first quarter of 2019. Arthur Hayes, the company's CEO, tapped into this broader narrative.
Hayes went on to discuss the fact that “censored, centralized, and top-down” digitalized currencies of the future simply cannot, and will not be able to hold a candle to the likes of Bitcoin for a number of reasons. –
“Bitcoin runs via a network of voluntary, independent, and self-interested actors, who neither demand nor require any favours or permissions; a few basis points in transaction fees is literally all they want from anyone.”
Hayes goes further, noting just when exactly the abolition of cash would inevitably lead to the broader adoption of Bitcoin, citing the need on a “moral and even psychological” level for people to have access to this kind of digital asset.