This recent move by Amazon could be a game changer for crypto

The European Central Bank (ECB), just like dozens of other central banks around the world, is working on the rollout of a digital central bank currency (CBDC) to replace traditional cash. As part of the prototype phase of this rollout, the ECB announced that the e-commerce powerhouse Amazon (AMZN -2.72%) would be one of only five participants in the next phase of the trial.

Amazon will be tasked with finding out how a European digital currency can be used for e-commerce. Basically, instead of paying for your Amazon purchases in Germany, Spain or France with euros, you would pay with a digital currency created by the ECB. While the ECB won’t make a final decision on whether to go ahead with a CBDC launch until 2023, this is the kind of development that could ultimately be a game-changer for popular cryptos most commonly used for online payments, especially Bitcoin (BTC 0.37%).

What we know about the Amazon lawsuit

Amazon’s trial of CBDC will be handled by the Amazon Payments department. Presumably, the lawsuit will focus on issues such as safety, security and usability. The ECB has said it wants to learn more about the types of real-world user interfaces that could be used with its digital currency. For example, in the case of Amazon, if you put an item in your Amazon cart and proceed to checkout, the ECB does not want you to be alarmed when you are asked to pay with a digital currency that you may not recognize or understand .

Image source: Getty Images.

Cryptocurrencies vs. CBDCs

It is important to point out that any digital currency from the ECB would not be a true cryptocurrency. There are several important differences between a central bank digital currency and a cryptocurrency. First, a CBDC is centralized (a central bank controls the currency) while a traditional cryptocurrency is decentralized (no one controls the currency). And while cryptocurrencies provide some degree of anonymity for the user, any CBDC would theoretically enable central banks to track the exact identity of any consumer, as well as how money is spent in the economy.

For example, if CBDC is ever launched, the ECB will know that Emmanuel Macron in Paris bought a new, slim-fit blue business suit jacket for 300 euros on Amazon’s French marketplace and paid 30 euros in tax on the transaction. If this had been purchased with a cryptocurrency, the ECB would only know that the purchase came from a specific digital wallet, but it would not necessarily know the owner of the digital wallet or whether taxes were paid.

Is this the key to widespread crypto adoption?

While I am not necessarily happy with the launch of a new privacy-eroding CBDC, I am ecstatic about the potential for these CBDCs to open the door to the widespread use of all digital currencies as a form of online payment. Right now you can pay for things online with cryptocurrency, but it’s far from mainstream. For example, you can pay with Bitcoin at crypto-friendly online retailers Overstock. Usually, though, you have to find a clever solution to using Bitcoin online, such as paying for a store gift card with crypto and then using that gift card to shop online.

Widespread acceptance of digital currency as a form of payment is likely to benefit a handful of cryptos most commonly accepted by online stores. The biggest advantage will of course be Bitcoin. The use of Bitcoin as a form of digital cash will help fulfill the original dream of Bitcoin founder Satoshi Nakamoto, who envisioned Bitcoin as “a peer-to-peer electronic cash system” back in 2008. If it becomes easy to pay for online purchases with central bank digital currencies, why shouldn’t it also be easy to pay for these purchases with a digital currency like Bitcoin?

The big picture here is that digital currencies are coming to e-commerce, and the only real question is what format they will take. If Amazon starts adopting digital currencies in Europe, it will only be a matter of time before they come to America. And once people accept the idea of ​​paying with digital currencies in America, is it really too much to assume that they will ask to use popular cryptocurrencies like Bitcoin as well?

If digital currencies ever become mainstream for e-commerce (and that’s a big “if”), it will probably quiet all the Bitcoin skeptics who keep asking what the use case is for crypto. The answer would be quick and undeniable: “You buy things with it.”