Digital currencies issued by central banks (CBDCs) have attracted significant attention in recent years, sparking a lively debate about their advantages and potential drawbacks. CBDCs are digital versions of a country’s fiat currency, centralized and backed by the central bank. In contrast, cryptocurrencies like Bitcoin (BTC) are decentralized and not controlled by any central authority.
Supporters of CBDCs argue that they could enhance payment efficiency and promote financial inclusion for individuals with limited access to the financial system. Critics, however, express concerns about privacy infringement and the potential for government corruption.
Kadan Stadelmann, the chief technology officer of blockchain platform Komodo, believes that these concerns about CBDCs are valid. He argues that the technology opens up possibilities for abuse and surveillance, giving governments unprecedented access to individuals’ financial transactions. Stadelmann also highlights the higher risk of hacking and other malicious activities if CBDCs become a country’s primary currency.
According to Stadelmann, if the world desires a digital currency, there is already a superior alternative that addresses the concerns associated with CBDCs: Bitcoin. He points to El Salvador, where President Nayib Bukele made Bitcoin legal tender in September 2021, becoming the first country to do so. The Central African Republic followed suit in 2022.
In contrast, according to the Human Rights Foundation’s CBDC tracker, as of November 2023, out of 193 existing governments worldwide, only 16 have deployed a working CBDC to the public, with 39 building a pilot and 64 still in the research phase.
Stadelmann emphasizes the importance of critical thinking and considering the potential abuse and current abuse of such systems, regardless of one’s stance on CBDCs. He believes that living in fear will not lead to a more peaceful financial system, but rather, dreaming and innovating will.
Peter Alfred-Adekeye, the founder and CEO of social e-commerce platform Boom Market, sees the adoption of CBDCs by governments as a sign of approval for the underlying technology of cryptocurrencies. He believes that this adoption eliminates the need for printing physical cash and benefits the environment. However, he also expresses concerns about the non-transparent and centralized nature of CBDCs, which could lead to misuse and the seizure of assets.
Alfred-Adekeye suggests that a two-state solution, where government-controlled CBDCs coexist with non-government-controlled decentralized cryptocurrencies and other real-world assets, would be a better approach.
Public opinion on CBDCs appears to be divided. A 2023 Cato Institute National Survey found that only 16% of Americans support adopting a CBDC, with 34% opposed and 49% having no opinion. The survey participants were more concerned about the risks associated with CBDCs than enthusiastic about their potential benefits.
Sebastien Davies, the vice president of research at crypto financial service platform Aquanow, believes that some of the opposition to CBDCs stems from concerns about potential misuse rather than the technology itself. He suggests that strong privacy protections and limits on government control could alleviate these fears.
Davies emphasizes the need for comprehensive regulatory frameworks to accompany the development of CBDCs, safeguarding privacy and preventing excessive government control. He also suggests that a hybrid model, where wholesale CBDCs coexist with private digital currencies and traditional cash, could offer a balanced approach that combines efficiency with financial autonomy.
The debate around CBDCs has created unease among both cryptocurrency enthusiasts and traditional finance professionals. Some fear the erosion of privacy and personal freedoms, while others worry about the disruption of existing financial systems and exclusion of certain populations.
Lucas Kiely, the chief investment officer at crypto trading platform Yield App, argues that a privacy option should always exist with currency, whether through cash or decentralized finance. He believes that finding a middle ground between the crypto community and the traditional finance industry is crucial. Kiely suggests that CBDCs could serve as a gateway to wider crypto adoption but acknowledges that more clarity and details about their implementation are needed to assess their impact accurately.
In conclusion, the debate surrounding CBDCs continues, with concerns raised from various perspectives. While CBDCs offer potential benefits, such as enhanced payment efficiency, financial inclusion, and the utilization of blockchain technology, there are valid concerns about privacy, government control, and potential misuse. Striking a balance between innovation and regulation will be crucial in shaping the future of digital currencies.