November 30, 2020

How will the launch of digital currencies by the Central Bank affect bitcoin?

How will the launch of digital currencies by the Central Bank affect bitcoin?

As soon as Facebook announced plans to create a digital payment currency dubbed Libra, central the banks decided to respond with their own invention.

While Libra faces regulatory challenges, the BIS report says there are currently more 80% of the world's central banks are already developing their government digital currencies (CBDC).

The idea and purpose of CBDC is fundamentally different from everything that Bitcoin stands for. With this in mind, the community is speculating on the possible implications for the most popular cryptocurrency.

And the main question is, will the state digital currency harm the functions of BTC in the online world, or will it simply pave the way for the ceremonial entry of bitcoin into the world arena?

Scenario A: CBDC is bad for Bitcoin

CBDC will represent an analogue of cashthe bills we use every day, but as the name suggests, they will only exist in digital format. There are still many questions regarding the development of government digital currencies. Which country will launch them first, what technologies will they use, will CBDCs be used for retail payments or not?

Ultimately, these questions will be answered. However, most people fear that the introduction of the CBDC will give governments complete control over tracking, approving, or suspending all future payment transactions.

The authorities justify the possibility of constant monitoring by the fact that they can reduce or even eliminate any illegal activity, including money laundering.

On the other hand, there were fears in the crypto community that the imminent launch of CBDC would harm the industry and its most famous representative Bitcoin.

Recently the CEO of the largestBinance crypto exchanges Changpeng Zhao (CZ) expressed the opinion that a well-designed CBDC could "become a threat" to the world's first cryptocurrency. He stressed that most of these currencies will be highly centralized and will not offer the same degree of freedom as Bitcoin.

Consequently, world governments will promote their own inventions while diminishing the role of something as decentralized as BTC.

Bitcoin describes in its project documentas an "electronic money P2P system". However, the immense competition behind the world's superpowers could really diminish the role of BTC, especially if CBDCs provide cheaper and faster transactions.

Moreover, their value will not fluctuate as muchas strong as the value of bitcoin. This may be another reason why people prefer to send or receive currency that will not lose a dime in value by the time the transaction is completed.

Scenario B: CBDC will help bitcoin as a payment instrument

There is another point of view according to whichthe emergence of CBDC can only contribute to the development of bitcoin. A representative of the large cryptocurrency firm Grayscale Investment said that after the launch of the CBDC, they could "strengthen the role of bitcoin in the global digital economy."

This is partly due to the fact that people have toget acquainted with the infrastructure of digital payments, which until now was not necessary. By studying this question, people will be able to see the significant differences between bitcoin and government digital currencies.

"Bitcoin is special not because it is digital, but because it is a scarce, uncompromising, apolitical currency available to everyone."

Scenario C: CBDC will help BTC as a store of value

If we assume that the first scenario is realized and bitcoin ceases to serve as a P2P electronic money system, this does not mean that it will not have value for society.

Instead of being used to transfer funds from one address to another, BTC can solidify its status as a store of value.

After all, Bitcoin has several things in commontrait with the most popular asset for preserving value - gold, having the same characteristic as scarcity. The price performance of the two assets has also been behaving in a similar way lately. The financial crisis due to COVID-19 has only strengthened their interconnection.

They were even compared by the chairman of the US Federal Reserve System Jerome Powell, noting that they represent a speculative form of store of value.

Another proponent of this statement isFidelity's cryptocurrency arm called Fidelity Digital Asset. In a report released this year, the company called bitcoin "an inspiring store of value."

So, if BTC really fails atAs a resource for online payments due to CBDC, its unique concept could propel it towards a different, perhaps even more important, role in today's digital world as a value-saving asset.

How will the launch of digital currencies by the Central Bank affect bitcoin?