Why You Shouldn’t Bother Pouring Money Into Central Bank Digital Currencies
Central Bank Digital Currencies (CBDCs) are cryptocurrencies that exist on the blockchain, but they do not decentralize wealth and authority the way Bitcoin, Ethereum and traditional cryptocurrencies do. That’s why pouring your capital into CBDCs may not be the best decision. As your cryptocurrency investing journey continues, you’ll want to develop this as your principal philosophy for protecting your value and privacy.
It’s vital to fall in love with this concept, especially if you’re just beginning to slip further down the cryptocurrency rabbit hole because the fear of missing out is inspiring you to take action. Perhaps you’re thinking to yourself, “If it’s all digital, what’s the difference?”
Asking yourself that question is totally fair. After all, there are literally thousands of cryptocurrencies outside of Bitcoin available for investment and surely being tied to the traditional financial system through a CBDC has its benefits.
The thing is that Bitcoin and the truly decentralized digital currencies that follow in its footsteps also centre around a certain ideology. That ideology is called libertarianism. Libertarians subscribe to the idea that human beings should be able to live free of government control. Like any other ideology, libertarians exist on a spectrum. Some are so anti-government they think everything is a conspiracy, while others simply want a little bit more freedom.
Wherever you lie on that spectrum, the bottom line is CBDCs will simply replace the paper money in your wallet just like your credit card and your smartphone do. Each of those three means of communicating value provide you with more convenience, but none of them free you of government control or inflation the way a true cryptocurrency will.
It’s time to be enlightened and understand why that is on a deeper level.
What Are Central Bank Digital Currencies and Why Are Governments Creating Them?
Before discussing what’s trending in the news about CBDCs, it’s important to understand what exactly they are and why governments are even bothering creating them.
CBDCs are essentially stablecoins. Stablecoins as they exist right now are decentralized cryptocurrencies whose value is pegged to a fiat currency. QCAD is a stablecoin pegged to the Canadian Dollar, meaning one QCAD token is worth one Canadian dollar. The U.S. Dollar Tether and USDC tokens are both stablecoins pegged to the American dollar, meaning each individual token on both blockchains is worth one American dollar. Stablecoins allow cryptocurrency investors to conveniently switch from a volatile crypto asset like Bitcoin or Ethereum to a stable crypto asset and vice versa while benefiting from decentralization and avoiding having to switch back to a government-backed currency. These benefits are exactly why multiple stablecoins are among the most valuable cryptocurrencies in the world.
A CBDC simply brings a stablecoin a few steps closer to government control. The difference between a central bank stablecoin and a decentralized stablecoin is essentially the difference between hosting a stablecoin on a completely public and transparent blockchain versus hosting it on a permissioned or semi-private blockchain where government administrators will maintain control over token supply and the token’s data and ledger.
Central Bank Digital Currencies Versus Decentralized Cryptocurrency Equals Private Blockchain Versus Public Blockchain
As with any feature that can be built on a blockchain, there are advantages and disadvantages to using a permissioned or private blockchain. Generally speaking, centralization increases the ability to handle a large volume of transactions at scale. This is an especially important advantage for CBDCs because they have to be able to handle millions of transactions for their nation’s citizens. They will also have to be able to handle high volumes of liquidity of currency with other central banks around the world. CBDCs also make it cheaper to do business, because blockchain technology provides a cheaper way to store information in a secure way.
Still, despite those advantages, CBDCs are philosophically not the same as Bitcoin or any other decentralized cryptocurrency. Bitcoin, Ethereum, Litecoin and 99% of the other cryptocurrencies that make up the market are built on public blockchains. This means there is no central authority. You don’t have to be a citizen of a specific country in order to use a true cryptocurrency. You don’t have to put your passport or citizenship information on the blockchain, and you don’t have to worry about anybody shutting you out from participating in the global economy. A public blockchain is by everyone and for everyone. Private blockchains might allow everyone to use them, but any currency built on them still provides governments and other central authorities with power over the people.
How The Race To Create Central Bank Digital Currencies Is Taking Shape
With government control, efficiency and scalability on the line, it should come as no surprise that all of the world’s largest and most robust economies are developing their own CBDCs. China has already been working on a digital yuan for some time now. Early in October, 2020, the country launched a free giveaway of its CBDC. 10 million yuan (worth about $2 million Canadian) were given away in the city of Shenzen. Winners downloaded a mobile app to receive the yuan and use it at more than 3,000 retailers in Shenzen. The digital yuan is owned by the country’s central bank, the People’s Bank of China.
State-run banks are also testing a cryptocurrency wallet and additional trials are also taking place in Hong Kong. Each of the above initiatives is collectively referred to as the Digital Currency Electronic Payment program.
Russia is also joining in on the CBDC frenzy. The Bank of Russia published a whitepaper outlining the details of a digital rubble. The country is a step behind in terms of testing and hasn’t gotten to that phase yet. The development of a digital rubble goes hand-in-hand with legislation that President Vladimir Putin signed into law earlier this year. That law stipulates that Russians can buy, sell and pledge using cryptocurrencies, but that cryptocurrencies cannot be used as payment. This sets the stage for the country to spread a digital currency across the nation that isn’t decentralized.
The G20 Is Also In The Mix
The G20 includes the European Union and a total of 20 of the wealthiest countries in the world (collectively known as the Group of 20). As members of the G20, they are meeting to discuss the development and deployment of CBDCs in the near future. The Bank of International Settlements already has a report out in coordination with the Bank of Canada, the Bank of Japan, Swiss National Bank, and many other nations regarding potential guidelines for creating and implementing the use of CBDCs.
The European Central Bank is also soliciting feedback from the public to try to figure out what a digital euro will look like. The bank’s announcement also makes mention of the fact that creation of a digital euro is necessary in order to help the region maintain monetary sovereignty and deter individuals from pursuing ‘foreign digital means of payment’. There, you have it in writing. Central banks and governments want you to use CBDCs and not go outside of the traditional financial system.
Why You Should Invest In Decentralized Cryptocurrencies Like Bitcoin Instead
By this point, you’re probably wondering what you’re supposed to do. Bitcoin and cryptocurrencies are proving themselves to be a legitimate store of value. That’s why large-scale institutional investing is ramping up. That said, using cryptocurrency on a day-to-day basis for payment is just not something that’s going to be reality next year or the year after that. For now, decentralized digital currencies function more like commodities such as gold than they do money.
With this in mind, it’s obvious that even some of the most boisterous crypto enthusiasts aren’t fully ready to live off of cryptocurrencies. This means that you will likely have to use CBDCs one way or another.
The best thing to do then is to either learn how to use credit and debit cards that facilitate crypto transactions wherever you go. The only other option is to keep a very minimal amount of your wealth with your bank the way you probably do now and start thinking about using cryptocurrencies as a safe haven investment if you aren’t already.
Remember a truly decentralized digital currency like Bitcoin or Ethereum registers your transactions on an immutable public blockchain. Your transactions are public and registered forever, but your identity is yours to keep. Your value is yours to keep. You get to be your own bank. No relying on governments or central banks to tell you what you can and can’t do with your wealth.
The truth is that everything governments are doing right now to try to play catch-up is just a way of subscribing to the ‘if you can’t beat them, join them’ philosophy.
The Best Way To Invest In Cryptocurrencies
The best way to invest in bitcoin and other cryptocurrencies is to register for a free account at Netcoins. It doesn’t matter if your initial preference is to use a cryptocurrency exchange in Toronto or Vancouver. Regardless of where you live in Canada, Netcoins gives you access to crypto investments like Bitcoin, Ethereum and Litecoin, as well as giving you access to decentralized stablecoins that live on public blockchains not controlled by governments.
Stay one step ahead of central banks and get started today!
Written by: Jack Choros
Writer, content marketing at Netcoins.