Bitcoin is miles ahead of central bank digital currencies
TOPSHOT – Pedestrians walk past ATMs (L and R) for digital currency Bitcoin in Hong Kong at … [+]
Governments around the world are struggling with how to implement digital currency standards. Many have come out against bitcoin as legal tender and are exploring their own digital currency pilots to “maintain monetary control”.
But for those looking at the central bank’s digital currencies, the distinction between them and bitcoin is no sharper, in ways that may be counterintuitive at first.
Analog states want to bring their “trust” into digital form to gain more control and surveillance over citizens. This is exactly the future that bitcoin can secure against – and there are several reasons why central bank digital currencies are not as reliable or as good an idea as some politicians would have you believe.
1- Central Bank Digital Currency (CBDCs) is still very unproven
With most countries around the world embracing pilots of central bank digital currencies, it remains a fairly untested concept. China’s digital yuan (e-CNY) may be one of the furthest along, but it’s still not quite ready for prime time, with only a limited number of city-by-city pilots and a pilot during the Winter Olympics. Countries have dedicated a lot of resources to researching and potentially piloting the concept, but the reality is that no digital currency from central banks has a decade-long track record of consistency and protection of digital value for a range of private customers as of 2022.
This matters because bitcoin has a track record of handling a huge amount of demand, transaction volume and attack vectors. While central banks have a lot of experience in the analog world of issuing currencies that are difficult to imitate or defraud, this does not mean that their experience will be fully applicable to the digital world, where attack vectors are very different.
We see governments struggling to secure their own digital data, requiring the help of domestic tech powerhouses: in the case of the US, companies like Microsoft
An entire ecosystem and reams of documentation have been built around bitcoin that a single government could hardly replace or replicate—especially since localized masters are not how innovation has grown in the globalized Internet, where the Internet itself relied on a network of global collaborators and users to bring to full execution.
2- Domestic top-down systems are not how software has flourished
When we look at the movement of protocols and the development of the Internet itself, it is open source collaboration across countries that has helped to quickly build innovative products.
Innovators and companies are gathering around the world to think of new solutions to a protocol problem—and one where people can have open access to the data and systems required to run the system.
Centralized companies or state-run entities do not play well across borders. For example, due to China’s fear of US-driven or Western-driven technology, Google, Facebook and others are not accessible to others without using a VPN.
A movement like the one around bitcoin allows people from multiple countries and companies to talk to each other and collaborate and build best-in-class tools for all kinds of needs, from digital value storage to transfer.
It is unlikely that a nation-state by itself would have created something like the Lightning Network and had it incorporated into the world’s financial infrastructure in a manner of years (rather than decades) and in a manner that was democratic and consulted all stakeholders. Countries that try to hedge their risk to the current financial order (such as Russia with the Mir system) find that their transaction systems very rarely persist outside their direct sphere of control.
Even Chinese payment lanes like Alipay, which have wide overseas penetration, are currently under the control of private companies — state allies and state dependents, to be sure, but not analogous to a top-down effort to build an entirely new payments infrastructure. This is a very good thing, because a totally concentrated, monitored and controlled digital payment infrastructure is the basis of a dystopian nightmare.
3- Despite what governments say, central banks’ digital currencies inevitably represent an invasion of privacy and a potential front for surveillance
Governments are quick to call themselves “guardians of the privacy of their citizens” in policy papers and in pilots for central bank digital currencies. The ECB, in a blog post outlining its vision for the digital euro, reinforces that “the protection of privacy must be of the highest standard.
People should be able to choose how much information they want to disclose – as long as they comply with applicable laws.” Still, it’s hard to fully trust that when you see how governments around the world have exploited their access to Internet traffic to monitor arbitrarily chosen enemies – and sometimes even their own citizens – and that the ECB throughout the rest of this blog post describes crowding. out private payment providers and others towards a centralized, widely used digital currency that would become a magnet for data about the most intimate habits of millions if not billions of people.
Despite any protests to the contrary and a few salutary but ultimately meaningless words, the reality is that a central bank digital currency allows a government to entrench its powers in a way that will not be very contentious because the lack of technological capability has limited itself. some governments.
Imagine the dystopian idea of an organization that would know absolutely every financial transaction that people have made, as well as given a level of individual control over that data – for example, punishing certain accounts with harmful interest rates. This is the reality of those who want to promote central bank digital currencies who believe that a major benefit will be the ability for governments to provide individual accounts and interest. Framed in policy-speak, it is a way of punishing savers on a more individual basis – but surely also a way of punishing dissidents.
In China, for example, where centralized data is available in the form of a digital wallet, this has already led to consequences for protesters in Hong Kong. Many protesters queued to buy transit cards in cash, as the digital trail left by Hong Kong’s Octopus card had previously been used as a source for the Hong Kong police investigation. And a senior researcher at Peking University pointed out that with China’s central bank’s digital currency, “no transaction that regulatory authorities would not be able to see.”
To add to that, maybe control too: censorship of transactions can happen based on information that the counterparties with a central entity can perform it. Indeed, many pundits claim this as a key benefit of CBDCs: the ability to effectively tailor monetary policy (and perhaps even fiscal policy) with individualized interest rate targeting and perhaps household-by-household-targeted stimulus.
Where economic pundits see merit, those who have seen the other side of Hobbes’s Leviathan may beg to differ. Dissidents and those who would be punished remain unheard. And lest we think this is an issue tied strictly to certain authoritarian governments, it is clear that with recent revelations and age-old grudges against virtual crimes, the “free world” (which includes the country with the highest recorded human incarceration rate ever . history) has its own way of casting “criminals”, from Julian Assange to Thomas Drake.
Bitcoin has been cast as unreliable and an energy drain – but it’s miles ahead of even the most advanced pilot of a digital central bank currency. The fact that so many do not have access to even the most basic financial instruments, from loans to credit, is a travesty: having a fully cash-based society is impractical, as cash can be difficult to move and flexible.
However, the choice between central banks’ digital currencies and cash must also be painted as a false one. People around the world are better off with an independent global standard that aims to protect their privacy and ability to act without censorship, rather than falling for a less localized version that aims to monitor and control them.
