With striking changes in economic habits, countries are now looking towards secure cryptocurrencies to solve monetary problems. But they need look no further than Bitcoin.
For anyone that has been paying attention– and arguably those who haven’t– there has been a notable shift in the basic functionality of the global economy. What may have taken decades more to come to a tipping point, has been spurred into immediacy by the havoc wrought by the novel coronavirus.
More than just crashing economies, halting production, and fracturing supply chains, the virus had another peculiar effect on how money is moved. People began to stray away from using fiat; not just because they were staying home, but also for the propensity that cash has for harboring germs. This quickly translated into shortages of coins and paper, as well as increased pressure on central banking systems to move to digital systems.
While this posed some issues for the underprepared national treasuries, it also devastated those that were underbanked or unbanked. Rushing towards a system that lacked global accessibility and left many stranded. Which could easily explain why green investor focused platforms like Bitvavo saw a massive increase in retail interest of cryptocurrencies.
Specifically, as centralized digital currencies may solve some problems for institutions, but crypto supplies a solution for all.
What is a CBDC?
CBDCs, or central bank digital currencies, are essentially cryptocurrencies that are produced by central bank authorities, and often issued as an alternative to fiat. While the technology isn’t new– and countries like Ecuador have been issuing them since 2015 –there seems to be a renewed vigor throughout global economies to refocus on the digital currencies as embrace of cashless and digital societies becomes ever more relevant.
While these types of currencies were based on the principals and functionality of Bitcoin, they have taken quite a notable departure from the popular crypto. Perhaps the starkest difference between the two is that CBDCs are backed by national resources or fiat, as well as issued by the state. So many of the “pseudoanonymous” perks of investing in Bitcoin and similarly structured cryptocurrencies would not apply. They would also be unlikely to deploy the use of distributed ledgers, one of the defining factors of cryptos.
Another interesting twist to the evolution of centralized digital currencies is that some countries who have released beta versions of them, have also banned competing interests– such as cryptocurrencies– from being freely traded. Which may be a likely explanation to why countries like China have been slowly introducing harsher restrictions in the crypto space.
Why Countries are Rushing to Embrace the Newest Crypto Fad..
So what is it about centralized digital currencies that make them so enticing to traditional financial structures? For once, digital currencies are much less expensive to monitor and implement than our paper fiat systems– which is a benefit to both citizens and national economic systems. Renewing interest and accessibility to the under- and unbanked. Helping to not only ensure supply, but also stabilize growth rate. Which for smaller nations, or those still stuck in economic turmoil, a genuine chance at sovereignty.
So these types of digital currencies could be a godsend for smaller nations that are dependent upon economic powerhouses like the US and European Union. These types of digital currencies could also help smooth the gap between shortages and the natural progression to a cashless society that’s been spurred by declining cash usage in recent years. With the inherent security of digital funds, it could mean less expenditure by enforcement agencies as digital currencies are far less subjected to criminal activity and nearly impossible to duplicate or double spend.
Why Bitcoin will Always Be on Top While there are enticing reasons for central banking authorities to begin gearing towards a more digitized future– there are still many things that centralized digital currencies just can’t offer. In fact, the majority of the founding principles of Bitcoin were conceptualized in stark opposition to centralization at its core. Instead of leaving purchasing power to banks and other centralized authorities, it goes directly to anyone who invests in the token. Creating not only a decentralized paradigm– but a democratized one as well.
CBDCs will still be subject to quantitative easing practices as well as other inflationary practices. Something that Bitcoin, near exclusively, doesn’t bow to. Instead of being backed by a commodity that could run short, become obsolete, or oscillate in value, the token takes its gains from artificial scarcity and investor interest. Making it not only a more reliable source of value, but also a system that can be accessed by almost anyone. Which is something that centralized digital currencies will never be able to do.
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