CBDC vs JAX-backed localized derivatives
by Maryna Trifonova, Head of Content at Jax.Network
Blockchain technology along with cryptocurrency as its main use case was created as a protest against the existing monetary system governed by central banks and political elites. The latter have criticized and tried to ban the tech quite many times. Having faced strong resistance, they came up with a plan B — CBDCs. Let’s find out what it is and why it isn’t superior to traditional fiat currencies.
Pros and cons of CBDC
Prior to jumping to pros and cons, we need to get ourselves familiar with the essence of a CBDC. A central bank digital currency or CBDC for short is a digital form of central bank money. Thus, it’s issued and regulated by the central bank of the country where it operates.
There are two types of CBDCs: wholesale and retail. The first type is intended to help financial institutions settle large interbank payments or transactions of digital tokenized financial assets in new infrastructures. The second type is more of interest to us, as it deals with payments carried out by the general public and represents a direct claim on a central bank.
According to the recent data published by IMF, more than 100 countries have shown a keen interest in retail CBDCs. And out of 65 surveyed banks (covering 72% of the world population and 91% of the world output), 86% have already started some work on CBDC, 60% have done some experiments, and 14% moved even further to pilot programs. Clearly, they see some potential gains under such a system; but is it a win-win scenario for everyone? Let’s try to find it out using the table below.
As you can notice, implementation of CBDCs comes with some trade-offs that remain a concern for many people. The most undervalued of them is privacy, as CBDC assets could be easily tracked on blockchain by anyone and managed by the central authority. Unlike cash which the owner can spend, store, and manage as he sees fit, CBDCs might be regulated similar to bank accounts and require lots of bureaucracy, even though carried out in a digital form. Then a logical question comes into mind — is CBDC any better than fiat?
What problems do JAX-backed stablecoins solve?
Cryptocurrencies or stablecoins, to be more precise, open a valley of opportunities for the development and improvement of the flawed monetary system we have used so far. Jax.Money is one of the examples depicting what the monetary system of the future may look like. Thanks to the underlying Jax.Net protocol and energy-underwritten stablecoins (JAX), the platform allows users to issue localized derivatives soft-pegged to Wrapped JAX (WJAX). At the moment, two stablecoins — JAX Dollar (JAXUD) and JAX Rupee (JAXRE) — are available for use. With the proven utility and greater adoption, more localized derivatives could be minted on the platform.
Unlike CBDCs, JAXUD and JAXRE aren’t controlled by the central authority such as the central bank, even though the Jax.Money platform itself is governed by an elected governor. However, his responsibilities are bound by the smart contract and are mainly focused on yield payments. Thus, neither the governor nor the smart contract can seize your assets or interfere with your use of them.
In addition, users are offered a decentralized wallet for storing, sending, and receiving WJAX, JAXUD, JAXRE, etc securely and privately. It’s a non-custodial wallet that ensures only the owner has full control over the wallet account. Moreover, the app doesn’t store any information about users’ accounts and doesn’t require KYC for using basic features in the wallet.
Conclusion
Governments all around the world started to pay closer attention to blockchain technology and discuss the potential implementation of CBDCs in the nearest future. Even though CBDCs may look like a major win for the crypto community, they still have a number of red flags that every rational person should be concerned about, especially when better alternatives are already available on the market.
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