Bitcoin is Miles Ahead of Central Bank Digital Currencies

Governments around the world are grappling with how to implement digital currency standards. Many have opposed bitcoin as legal tender and are exploring their own digital currency pilots to “maintain monetary control”.

However, for those looking at central bank digital currencies, the divide between them and bitcoin is less stark in ways that may be counterintuitive at first.

Analog states want to transfer their “trust” to a digital form in order to gain more control and control over their citizens. This is the future that bitcoin can hedge, 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 Currencies (CBDC) are still very unproven

While most countries around the world have embraced pilots of central bank digital currencies, it’s still a fairly unproven 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 limited city-by-city pilots and a pilot during the Winter Olympics. Countries have devoted a lot of resources to researching and potentially testing the concept, but the reality is that no central bank digital currency has decades of experience in maintaining digital value and consistency for a range of retail customers by 2022.

This is important because bitcoin has a track record of dealing with large amounts of demand, transaction volume, and attack vectors. While central banks have a lot of experience in issuing currencies that are difficult to imitate or cheat in the analog world, this does not mean that their experience is completely applicable to the digital world, where attack vectors are very different.

We see governments struggling to protect their digital data, enlisting the help of local tech powerhouses: companies like Microsoft in the US
, and companies like Huawei in China. Disclosure of Shanghai police database could leak personal information of one billion Chinese residents. In 2020, the US federal government suffered a major data breach.

An entire ecosystem and a lot of documentation has been built around Bitcoin that is unlikely to be replaced or replicated by a single government – ​​especially since innovation is not localized states in the globalized Internet, where the Internet itself relies on a global network of collaborators and users. to complete.

2- Native top-down systems are not how software flourishes

Looking at the movement of protocols and the evolution of the Internet, it is cross-country open source collaboration that helps build innovative products quickly.

Innovators and companies from all over the world come together to think of new solutions to the protocol problem – and here people can have open access to the data and systems required to power the system.

Centralized corporations or state-run entities do not play well across borders. For example, Google, Facebook and others are not accessible to others without the use of a VPN due to China’s fear of technology controlled by the US or the West.

A movement like the one surrounding Bitcoin allows people from different countries and companies to talk to each other, collaborate and create the best tools for all kinds of needs, from digital value storage to transfer.

It is unlikely that a nation-state could create something like the Lightning Network by itself and integrate it into the world’s financial infrastructure in a matter of years (not decades) and democratically and in consultation with all stakeholders. Countries that try to hedge their risks against the existing financial order (such as Russia with the Mir system) find that their operating systems rarely fall outside of direct control.

Even Chinese payment rails such as Alipay, which have a wide presence abroad, are now controlled by private companies – state-allied and state-dependent, certainly not unlike a top-down effort to build entirely new payments. infrastructure. This is a very good thing, because a fully centralized, controlled and controlled digital payments infrastructure is the basis of a dystopian nightmare.

3- Despite what governments say, central bank digital currencies inevitably represent an invasion of privacy and a potential front for surveillance.

Governments are quick to call themselves “privacy-focused” in policy documents and central bank digital currency pilots. In a blog post outlining its vision for the digital Euro, the ECB said, “privacy protection 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 existing laws.” However, it is hard to believe how governments around the world gain access to Internet traffic to monitor arbitrarily chosen enemies and sometimes even their own citizens, and the rest of this blog post describes the ECB mob. private payment providers and others are turning to a centralized, widely used digital currency that will become a magnet for information about the most intimate habits of millions, if not billions of people.

Despite protests to the contrary and a few salutary but ultimately futile words, the reality is that a central bank’s digital currency allows the government to assert its authority in a way that is not too controversial, as a lack of technological capability is self-limiting. some governments.

Imagine the dystopian idea of ​​an organization that has complete knowledge of every financial transaction people make and provides an individual level of control over that information—for example, penalizing certain accounts with harmful interest rates. This is the reality of those who want to develop central bank digital currencies, who think that governments will be able to provide individual accounts and interest rates. Politically speaking, this is a way to punish savers in a more individual way – but surely also a way to punish dissidents.

For example, in China, where centralized data exists in the form of a digital wallet, this has already had consequences for protesters in Hong Kong. Many protesters queued to buy transit tickets in cash as the digital footprint left by Hong Kong’s Octopus card was previously used as a source for a Hong Kong police investigation. A senior researcher at Peking University noted that there are “no transactions that regulators can’t see” with China’s central bank’s digital currency.

To add to this, perhaps surveillance: censorship of transactions could happen based on information about counterparties, with a central authority able to do so. In fact, many experts claim this as a central benefit of CBDCs: the ability to effectively align money (and perhaps fiscal policy) with personalized interest rate targeting and possibly household stimulus.

Where economic experts see the benefit, those who see the other side of Hobbes’s Leviathan may disagree. Dissidents and those who will be punished remain silent. And if we don’t think this is strictly a matter of certain authoritarian governments, it’s clear that the “free world” (which includes the country with the highest incarceration rate ever recorded in human history) with the recent revelations and old grudge against virtual crimes Julian Assange- from Thomas Drake to punishing “criminals” has its own way.

Bitcoin has been hailed as unreliable and an energy carrier – yet it is miles ahead of even the most advanced pilot for a central bank digital currency. The fact that so many do not have access to even the simplest financial tools, from loans to loans, is humiliating: a fully cash-based society is impossible, as cash can be difficult to transfer and flexible.

However, the choice between central bank digital currencies and cash should also be dismissed as false. People around the world are better off with a stand-alone global standard that aims to protect their privacy and the ability to operate without censorship than with a low-level localized version that aims to track and control them.

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