What is Bitcoin?
Bitcoin is a decentralised digital currency that was invented in 2008 by an unknown person or group of people using the pseudonym Satoshi Nakamoto. It was released as open-source software in 2009.
Bitcoin operates on a peer-to-peer network without the need for a central authority or intermediaries like banks. Transactions are verified by network nodes through cryptography and recorded on a public distributed ledger called the blockchain. This ledger ensures transparency and security, as each block of transactions is linked to the previous one, making it difficult to alter past transactions, thus being untraceable in the long run.
One crucial feature of Bitcoin is its limited supply. The total number of Bitcoins that will ever exist is capped at 21 million, making it a deflationary asset in theory. This scarcity, coupled with the growing interest, has led to fluctuations in its value over time, with significant price rallies and corrections.
Bitcoin has gained popularity as a store of value and a medium of exchange. Some people see it as a potential hedge against inflation and a way to preserve purchasing power, while others view it as a speculative investment, taking advantage of Bitcoin’s rallies. The use of Bitcoin for online purchases and remittances has also increased, and some merchants and businesses accept it as a form of payment.
CBDCs: Central Bank Digital Currencies Explained
CBDCs stand for Central Bank Digital Currencies. These are digital forms of a country’s fiat currency that are issued and regulated by the country’s central bank. Unlike cryptocurrencies like Bitcoin, CBDCs are centralized and are under the direct control of the government and the central bank. The goal of introducing CBDCs is to provide a secure and efficient means of conducting digital transactions while maintaining the central bank’s oversight and control over the monetary system.
So, through this quick overview of what a CBDC is, we can see that it’s a counter to Bitcoin, due to Bitcoin being decentralized, with nobody knowing who owns it, thus not being regulated. Therefore, moving to a currency (CBDC) that can be regulated, that is centralized, and thus controlled by intermediaries, like the bank.
In May 2020, only 35 countries were considering a CBDC. Fast forward to today, 114 countries are now considering a CBDC, which equals 95% of the global GDP, while currently 60 countries are in the advanced phases of exploring a CBDC. 11 countries have already launched their own CBDC in the last 2 years. What countries are these? Nigeria, Bahamas, Anguilla, Dominica, Grenada, St. Lucia, Montserrat, St. Vincent, St. Kitts, and Nevis, and most recently Jamaica. These are all small countries with low GDP. However, G7 countries have now entered the development stage of CBDCs. With China being the most advanced, by actually launching their own CBDC, pushing 18 G20 countries to be in advanced stages of CBDC development. This represents how this is a present development and something we could see be in full throttle in the next 5-10 years.
Analysing CBDCs: Benefits and Drawbacks
The pros of CBDCs are as follows: increased payment efficiency, complement current forms of money and financial services, deter criminal activity, and improve international payment options. Lastly, potentially reducing net transaction costs, benefiting low-income households, one of the bank’s mandates, equity.
The cons of CBDCs are as follows: could create instability, effectiveness of monetary policy deteriorates, operational difficulties, cybersecurity risks. Thus, lastly, a loss of privacy. The bank will be aware of all your transactions, what you are spending your money on, your buying habits, etc.
The banks are very much aware that a loss of privacy to the economy will be a by-product of a CBDC. However, this is what they want. The last thing they want is the whole economy switching to a decentralized currency like Bitcoin, as they will have no control; the government will have no control, and therefore, will have no control over the economy. So, are you okay with the way the government/banks are thinking? If so, you may be for CBDC.
So here we see the pros and cons of CBDCs and therefore can boil down what type of groups/people will be most likely pro CBDC and thus what type of people will be anti-CBDC.
“This week, we had a hearing on Central Bank Digital Currency. The Fed is considering a CBDC for the U.S. If done well, it could help the 1 in 5 un/underbanked Americans. But it should be administered directly by the Fed. If Wall St. acts as a middleman, we’ll further inequity.”
Rep. Alexandria Ocasio-Cortez
The government is for CBDC. Rep. Alexandria Ocasio-Cortez is for CBDC. Elizabeth Warren, a United States senator, is for CBDC. So what type of people will be anti-CBDC? Free thinkers, entrepreneurs, libertarians. Also, people who are innovators, like the anonymous person/group which created Bitcoin in the first place.
Ultimately, CBDCs are likely to become the norm in the next 5-10 years with rapid advancements in production in G20 countries and thus, rapid shifts in lifestyle and economies in the near future. Bitcoin is a currency that the bank/government does not like due to it being unable to be regulated. Thus, they will do everything they can to shift the narrative to CBDCs. Ultimately, whether you like CBDCs or not comes down to preference. So, it comes down to this question: which side are you on?
Written by Rhys Bimpong
Produced by Madhav Bhimjiyani