A couple of months ago, El Salvador became the first nation to adopt bitcoin as legal money. On Tuesday, companies like McDonald’s and Starbucks began accepting bitcoin, making it possible to use the cryptocurrency for everything from purchasing a cup of coffee to paying taxes. Economists, the IMF, and credit rating agencies have slammed the initiative, saying it jeopardizes economic stability, puts consumers at risk, and exposes the government to potentially significant currency rate swings. Central banks around the globe are attempting to co-opt digital currencies for their own reasons. Unlike bitcoin, CBDCs are government-issued, basically digital versions of existing national currencies. China’s digital yuan is leading the race and has already been used in over $5 billion in transactions. More than 80 countries nations are considering launching a digital currency. Five already have and there will be more in the future. While the digital currency’s first week in El Salvador has been anything but smooth, El Salvador beat everyone to the punch and based the country’s monetary policy on a decentralized network controlled by a set of predetermined rules. This is a significant step toward a future where money is secure and not susceptible to political whims. El Salvador is unquestionably the start of something magical.
Ilias Louis Hatzis is the founder and CEO at Kryptonio wallet. Please participate in our Crypto Wallet Survey, we could use your help. It’s seven simple multiple-choice questions about crypto wallets and you should be done in 60 seconds. The survey is completely anonymous.
In little over a decade, the rise of Bitcoin and thousands of other cryptocurrencies has altered the meaning of money and transformed financial services, leaving governments across the globe trying to catch up. The benefits of cryptocurrencies have been felt across a broad range of industries, even by those who are opposed to the industry. Moreover, the advent of the pandemic has accelerated the shift to digital. Mobile and contactless payments are already commonplace. QR codes and “buy now, pay later” options are gaining traction.
This has forced central banks to rethink their position and step up their efforts to make CBDCs available sooner than you think. One in ten central banks is expected to offer CBDCs within the next three years.
CBDCs have the potential to enable a wide range of new capabilities, such as direct government payments to people, frictionless consumer payment and money-transfer systems, and a variety of new financial instruments and monetary policy levers.
On the other hand, CBDCs present plenty of technical challenges and design issues. A well-designed CBDC will need an infrastructure that is highly robust and secure, with the ability to onboard, authenticate, and support users on a large scale. It will need an architecture that is both basic and flexible enough to accommodate current and future requirements and uses cases. A CBDC will also need to handle privacy and safeguard user data from being misused while allowing data mining for end-user services, policymakers, and law enforcement investigations and interventions on a case-by-case basis.
Even if central banks figure it all out and deliver a perfectly designed CBDC, the real problem for central banks is that CBDCs will take years to be developed, while cryptocurrencies are already here.
According to a panel of fintech specialists, bitcoin will surpass money issued by central banks as the dominant form of finance worldwide in less than 30 years. Fifty-four percent (54%) of 42 crypto experts foresee “hyperbitcoinization” by 2050, the moment that bitcoin overtakes global finance, according to a survey from Finder.com. That event could take place even sooner, by 2035, according to 29% of the respondents.
Bitcoin is artificially capped in supply, offers a programmatic monetary supply, has full transparency, reduces the government’s ability for surveillance, and is the most secure network in the world.
For now, it’s very difficult for bitcoin to entirely replace the dollar or any other fiat money. To get there regulation is paramount. Cryptocurrencies are now susceptible to tweets or reactions from VIPs, big investors, other stakeholders, and observers, as well as governments. A regulatory framework will provide protection against all of the above and give it the time it needs.
We have to ask ourselves why people would want a CBDC and what would they want it to do? The truth is that CBDCs are a temporary answer. Even though people don’t like the idea of putting their savings into something that could be up or down 20% in a matter of days, the volatility is going to go away and will not plague bitcoin forever, as more layer 2 innovation rolls out and it finds more use cases.
Money is changing and cryptocurrencies already have a significant impact on fiat currencies and economies. While the choice is ours, you don’t have to be Einstein to figure it out. Any day of the week and twice on Sunday, a digitally native generation is going to pick bitcoin, a digitally native currency over any digital fiat currency. Ultimately we will have a single currency, and I believe that it will be bitcoin.
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