Will CBDCs be the future of crypto? Shorter answer: no.
Short answer: they will be a part of it.
Long answer: first of all, what even are CBDCs?
CBDCs, or Central Bank Digital Currencies, are stablecoins that are managed by central banks. They are a sort of hybrid between decentralized cryptocurrencies like Bitcoin or Ethereum and fiat currencies the US Dollar or the Euro.
CBDCs are very much a nascent concept, and not a lot of them exist yet. Most are still in a proof of concept stage, and that means we don’t know a lot about them.
Let’s take a look at what we do know:
Will CBDCs be on the blockchain?
Short answer: Some will, some won’t.
Correct answer: We’ll see.
Let’s take a look at one of the CBDCs that are already actually in circulation, the Digital RMB. The Digital RMB, or DCEP (Digital Currency Electronic Payment) is already in circulation in certain areas of China. It has legal tender status, meaning that all merchants in these areas are obligated to accept it. It is issued by the People’s Bank of China. For all intents and purposes, it is a fiat currency.
So what is the difference between the DCEP and any other fiat currency?
Isn’t 92% of the world’s fiat money already digital anyway?
Yeah…
That’s kinda the point.
The Chinese government sees the DCEP as a way of getting rid of banknotes and coins. While fiat money has no intrinsic value (by definition) and is already mostly used digitally anyway, we still think of banknotes and coins as the actual currency. We still expect to be able to go to an ATM and get physical money.
Currencies like the DCEP mean to fix that and move us towards a cashless society.
But is it fiat? Or is it crypto? Is the DCEP even on the blockchain at all?
Two things we know for sure: it’s most certainly fiat. Regardless of it being purely digital, it’s legal tender and its value is decreed by the government. That means it’s fiat. Second thing we know for sure: it’s centralized. It’s run and operated by the PBOC, period.
What we do not know, however, is whether it’s on the blockchain or not.
The Chinese government isn’t exactly forthcoming with information about this project or its inner workings, so we can’t tell for sure whether the technology has anything to do with blockchain or not. Since it’s mentioned nowhere, however, and since centralization is absolutely a key aspect of how it functions, it’s a fair guess that the DCEP is not blockchain-based at all.
This isn’t the case for all CBDCs, though.
South Korea has very different plans for their CBDC. Their central bank is developing its CBDC with GroundX and ConsenSys, and it will in fact be blockchain-based. GroundX has developed Klaytn, a public blockchain with Ethereum compatibility.
Australia is doing exactly the same, with very much the same people at ConsenSys.
These projects, however, are in a very early stage, as opposed, for example, to Jamaica’s.
Which is not blockchain-based and has already completed its first pilot and is pretty much ready to launch in earnest.
Can it be crypto if it’s not on the blockchain?
Short answer: yes.
Correct answer: It depends on what you mean:
We use “crypto” as shorthand for cryptocurrencies, and what we mean, colloquially, is blockchain-based, decentralized, cryptocurrencies.
Technically, however, while it is true that we’ve come to associate crypto with blockchain technology, that’s not necessarily the case. Crypto is short for cryptography, and while blockchain is without a doubt used in the most widespread and widely used forms of cryptography-based money, it’s not the only way to do it.
It’s conceivable that CBDCs developed in the future will be, in one way or another, “crypto”, even if they aren’t on the blockchain.
It’s hard to say what the future holds for CBDCs, and the only thing we seem to know for sure is that they’re happening.
And if they happen, whether they are on-chain or not, they will be competing on a number of levels with decentralized, blockchain-based projects, especially stablecoins.
We all know that stablecoins are a key element in the crypto landscape, so it will be interesting to see how coins like USDC and USDT work in tandem with a potential digital dollar, which the Fed is, and we quote, “considering”.
CBDCs, in one shape or another, are happening
You may not have heard a lot about it, but the e-Naira is already running, and it’s actually seeing some pretty interesting adoption numbers. The Bahamian Sand Dollar is almost ready to celebrate its first birthday.
We have no idea what the real role of these currencies will be in the global landscape.
We do know we’ll be ready.
Will you?
Are you already accepting crypto in your webstore? Are you already invoicing in crypto?
