A study commissioned by the European Parliament Committee on Economic and Monetary Affairs, titled "Competition issues in the Area of Financial Technology," suggests that bitcoin and other decentralized cryptocurrencies could (and perhaps should) be obsoleted by "cryptocurrencies" issued by the central banks.
The report covers a lot of ground, but this aspect is especially interesting.
"The arrival of permissioned cryptocurrencies promoted by banks, even by central banks, will reshape the current competition level in the cryptocurrency market, broadening the number of competitors." states the report. "A potential inadequacy of traditional competition policy to address competition issues in the cryptocurrency markets can be found, suggesting direct public participation through a central-bank digital currency as a remedy." According to the report, unfair or predatory practices of in the permission-less cryptocurrency space may deter consumers.
Therefore, the consumers would switch to the permissioned cryptocurrencies promoted by the banks.
The report notes that, contrary to open and permission-less cryptocurrencies such as Bitcoin and Ethereum, closed and permmissioned cryptocurrency systems would require a supervisory authority.
"The central banks or traditional banks could be planning to use those permissioned cryptocurrency systems in an attempt to complement or substitute the permission-less currencies already in use."
Blockchain-based digital currencies are appealing to central banks and national authorities because they have a clear, evident and objective potential to streamline obsolete financial systems, eliminating inefficiencies and adding robust ways to monitor and control all financial transactions.
It seems paradoxical that blockchain technology, which was initially considered by crypto-anarchists as a means to avoid taxes, can actually be used by the authorities to fight tax evasion. But a blockchain is a permanent, tamper-proof record of all transactions. From the point of view of the authorities, this is a very useful feature, but the disturbing "crypto" thing and the potential for private transactions must go.
CBDCs are not cryptocurrencies
However, the authors of the report are forgetting (or have never realized) that what makes ryptocurrencies appealing to many users is precisely the fact that a cryptocurrency is free from central control. Therefore, a state-controlled coin would be a digital currency based on a permissioned blockchain, but not a real cryptocurrency.
I think it's quite likely that central banks will issue "Central Bank Digital Currencies" (CBDC) controlled by the government. Citizens will certainly use CBDCs because CBDCs will streamine the financial system as a whole, but they won't consider CBDCs as a replacement for cryptocurrencies. On the contrary, they'll still use Bitcoin, Ethereum and other real cryptocurrencies for private transactions.
A Forbes analysis notes that central and commercial banks could price out bitcoin and other cryptocurrencies or institute denials of service, blocking access to exchanges or wallets for users.
Of course, if that's not enough, the authorities could consider banning cryptocurrency trading and mining entirely, as recently proposed by a Congressman in the US. But such extreme measures would be impossible to enforce in practice.
Picture from Wikimedia Commons.
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Crypto Insider Editor Giulio Prisco is a writer specialized in science, technology and business. He is persuaded that crypto has the potential to bring disruptive positive changes to the internet and society at large.