With a record high of $19,300 per Bitcoin and the market taking in over $3.8 billion on February 8th, cryptocurrency is alive and well. But what will happen when all the coins have been mined? Will technology replace it? Or was this just an anomaly that we’ll never see again?
The “is crypto dead” is a question that has been asked many times. The answer is no, cryptocurrency isn’t dead. In 2021, it will be worth more than $1 trillion.
This is a broad brushstroke that does not apply to every bank: JP Morgan’s JPM Coin and Interbank Information Network, which is a permissioned version of the Ethereum blockchain, are among the most notable exceptions to this rule. Banks, on the other hand, are undoubtedly afraid of cryptocurrency.
Furthermore, there is a counter-argument that banks shun cryptocurrencies because they are intangible assets that banks must subtract from their balance sheets, lowering confidence in them as a lending institution. It also goes beyond my area of expertise, as well as the topic of this specific post.
But there’s something unusual going on. It is not, however, directed towards cryptocurrency. It is towards the science that Cryptocurrency is based on.
Bank of England Digital currencies are rapidly gaining popularity across the globe. Trials are underway, with commercial and central banks collaborating to see how this fresh new technology operates inside the financial world they currently know. Crypto engineering continues to have an immediate impact on the concept, which is now being tested in several proof of principle models throughout the world.
But, if banks are afraid of cryptocurrency, why aren’t they afraid of CBDCs? I suppose there are two causes behind this:
CBDCs are nothing more than an electronic version of fiat currency. Furthermore, you and I, as well as the average person on the street, undoubtedly believe fiat (at the very least in many countries). We believe it because central banks and governments back it and are protected by legislation. CBDCs are created – and, as a result, controlled – by central banks, which will recall the power that comes with communities relying on and trusting that fiat currency. And when you have that kind of energy, politicians and authorities don’t want to forget about it anytime soon.
Cryptocurrencies decentralize power, taking it away from commercial and central banks, as well as governments. CBDCs, on the other hand, centralize: they cling on to power, maybe even reinforcing it.
Many may argue, however, that without government support, without authorities and institutions to oversee a currency, people would lose faith in it. Perhaps the power’s faith and the people’s confidence in the institutions that rule them are two sides of the same coin (pun intended).
However, in that instance, two forces are effectively moving in the same direction, which is not towards cryptocurrency. Instead, state-backed and controlled digital currencies based on similar ideas and technology should be pursued.
If we face it for a moment, many developed economies rely on fiat money and will most likely continue to do so in the near future. We should also acknowledge that we have faith in the persons and organizations in charge of fiat money to do it effectively. (If they weren’t, we’d have lost faith in them and moved on to other avenues of communication by now.) By trusting these folks, we’re implicitly accepting their understanding of money and the complexities of monetary systems.
It will not be a huge leap for us to put our faith in electronic fiat currency (CBDCs), which is built on technologies that we may not be aware of, but which is built by people who have a combined understanding of technology and money. If we can put our faith in a good British Pound coin or even a US Dollar note without knowing the monetary systems that support it, or even trillion-dollar tech businesses without understanding the science, we can put our faith in anything.
And, following that logic, I’m at comfortable with the fact that Central Bank Digital Currencies are critical to the next generation of financial technology. The next stage of development is already happening, and it involves integrating financial services from outside the financial services business.
We’ve seen how digitization has impacted other businesses and people’s lives (shopping with Amazon, going with Uber, and searching with Google). Non-financial organizations will be able to incorporate digital solutions into their websites and applications as a result of the growth of payments, making information and journeys that little bit better, quicker, cheaper, and tailored-made for people and me. CDBCs will be a critical component of this journey.
CBDCs may be able to assist organizations in embedding financial solutions at a deeper level than previously possible. Of course, if this helps individuals to accomplish even more on a budget in their hectic daily lives, it may assist enhance our belief in CDBCs. Furthermore, by increasing our collective trust in an electronic offer, we can manage it via the institutions we already trust. This will deepen the gap between cryptocurrency and central bank digital money in the future.
In the past few days, cryptocurrencies have been falling hard. The price of Bitcoin has dropped by over 40% in a single day, and many other coins are following suit. This is just the latest in a string of bad news for the cryptocurrency market. Reference: why is crypto falling today.
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