Cryptos continue to be mistrusted by the traditional financial infrastructure despite the interest shown in the decentralized ledger technology by the central banks. The incoming Bank of England governor made this case apparent while addressing the members of the UK parliament at a Treasury Select Committee hearing held on March 4.

He stated:

“If you want to buy Bitcoin, be prepared to lose all your money… [Bitcoin] has no intrinsic value.”

However, the technology is still misunderstood despite the launch of the Venezuelan Petro and debates of the centralized Central Bank Digital Currencies (CBDCs). Some regulators and central banks also consider it a threat to the current status quo. Nonetheless, there is a genuine aim to see this technology develop in a significant manner, while cryptos continue to establish themselves in the financial sector.

Is CBDCs Useless?

In recent months, CBDCs have become the trendiest subjects in the crypto space. At least 17 governments spread throughout the world are exploring the potential uses of CBDCs, as highlighted by the BIS Quarterly Review.

For instance, Christine Lagarde, the president of the European Central Bank earlier this year, publicly said that active participation in the development of a CBDC in an aim to address the demand for cheaper and faster cross-border remittances and payments.

But the same report also reveals that the cross-border payments are not a priority in any of the current projects. Also, a CBDC cannot solve the issue of a lack of access to transitional accounts. The shortcomings of developing economies and emerging markets, where cryptos have offered an escape route for economic stability and inflation, are mostly caused by central banks.

These efforts appear to ignore the value of blockchain technology, its immutable, decentralized, and at times transparent in nature. Centralized payments are more scalable and faster than cryptos like Bitcoin since their transactions are processed and registered. The BIC Report states:

“The overhead needed to operate a consensus mechanism is the main reason why DLTs have lower transaction throughput than conventional architectures. Specifically, these limits imply that current DLT could not be used for the direct CBDC except in tiny jurisdictions, given the probable volume of data throughput.”

There is always some form of centralization that opposes the core values of cryptos, which are immutability and decentralization, despite banks exploring various architectures trying to create CBDCs. The report also reveals that the central bank is the only party that will issue and redeem a CBDC. The lead blockchain strategist at MintBit, Arwen Smidt, while attending the London Blockchain Week said:

“CBDC’s could very well become potentially a tool for governments to assert control on crypto. It’s part of the reason why these central banks are looking at it. So, that can go two ways: either the government would do it purely to assert control or to make cryptos fall in line with the future monetary policy and also grant legitimacy to these new forms of private money.”

According to her, creating a new digital currency will enable the embed value systems and privacy considerations in a particular currency. In that context, anyone who uses or is exposed to the currency automatically accepts these assumptions.

As DLT is currently being studied as an option to power CBDC development, another technology may be leveraged. Blockchain or some other technology closely related may be used, but decentralization of transaction processing and authentication will not happen. Therefore, the transfers would not provide the censorless and anonymous components linked with cryptos. The report says:

“Overall, one needs to weigh the costs and benefits of using DLT carefully. This technology essentially outsources to external validators the authority to adjust claims on the central bank balance sheet, which is advantageous only if one trusts this network to operate more reliably than the central bank. Ongoing assessments of DLT-based proofs-of-concept tend to be negative.”

The Status Quo Under Siege

Although some nations have chosen to embrace cryptocurrencies, not everyone is crypto-friendly. Some governments have imposed restrictions, while others have banned cryptos entirely. The People’s Bank of China did a crackdown of crypto exchanges shows that China is still hesitant about the nascent industry despite developing its digital Yuan.

On the other hand, the recent crackdowns on initial coin offerings (ICOs) in many countries were a needed enhancement after many major scams were uncovered. Despite many attempts by authorities, governments, and central banks to keep people away from using crypto, many new technologies are getting developed that threaten the status quo.

Jon Cunliffe, a Bank of England representative, said that the emergence of the crypto economy, especially stablecoins might weaken or eliminate bank credit issuance. This scenario made financial regulators oppose Facebook’s Libra. If Libra launches, it will expose Facebook’s user base to the token, making cross border payments cheaper and faster.

Libra also has the potential to help with the financial inclusion of millions of unbanked people around the world. Also, the decentralized finance industry is slowly becoming a threat to traditional financial service advisors. Through the new system, people can access transparent borrowing, lending, and other services, including decentralized stablecoins and betting markets.

Decentralized finance (DeFi) is growing rapidly recently, smashing the $1 billion in value barrier of funds locked in DeFi markets. It is also creating adequate space for new financial services while simultaneously contributing to financial transparency and inclusion.

Traditional Finance and Crypto Gap Closing

The gap between crypto and traditional finance systems including central banks seems to be narrowing as regulations catch up with the technology globally. Also, the launch of regulated financial instruments and innovative DeFi solutions has attracted many institutional investors. Tokenization of assets and other properties by corporations strives to lower the $17–27 billion spent on trade processing annually.

Decentralized stablecoins are also connecting the two worlds offering definite entryways into crypto while enabling users to effectively leverage the best of the technology without any exposure to excessive volatility.

Alternative banking apps that support crypto payments and transfers intuitive make cryptocurrencies easy to use. These apps also offer banking services like loans and savings accounts. But a lot must be done for this gap to be eliminated.

Furthermore, the crypto space is small compared to the general investment market. Hence, it will take more time before cryptos are accepted entirely as mainstream forms of payment.

About the author

Wanguba Muriuki is an Editor at Large for E-Crypto News and author of the book- "The Exploitative Intrigues of Cryptocurrency Scams Explained." He is also a passionate creator who sees every aspect of life from a written perspective. He loves Blockchain, Cryptocurrency, Technology, and Traveling. He is a widely experienced creative and technical writer. Everything and everyone is describable. The best description is written.

Related Posts

E-Crypto News Executive Interviews

Crypto Scams

Cryptosoft Trading Bot Review
June 27, 2022
The Largest Crypto Scams Of 2022 (So Far)
The Largest Crypto Scams Of 2022 (So Far)
June 14, 2022
How Do Scammers Entice Their Prey?
May 10, 2022
Beanstalk Farms Loses $80M In A Massive DeFi Governance Flash-Loan Hack
Beanstalk Farms Loses $80M In A Massive DeFi Governance Flash-Loan Hack
April 23, 2022
Joon Pak Head of Crypto at Prove talks to Us about Crypto Fraud And More
April 11, 2022

Automated trading with HaasBot Crypto Trading Bots

Blockchain/Cryptocurrency Questions and Answers

Is The Crypto Market Combating A Lehman Brothers Moment?
Is The Crypto Market Combating A Lehman Brothers Moment?
June 30, 2022
Roundtable Interview-What is the Effect of The Russia-Ukraine War on Cryptocurrency Prices?
March 4, 2022
How Does Bitcoin Casino Work + 2021 Beginner’s Guide
November 8, 2021
How to Buy and Sell Cryptocurrency
November 8, 2021
What Are Bitcoin Futures And How Will They Work In 2022?
November 4, 2021

CryptoCurrencyUSDChange 1hChange 24hChange 7d
Bitcoin20,333 2.66 % 1.47 % 3.64 %
Ethereum1,090.9 2.36 % 0.41 % 4.68 %
Tether0.9997 0.80 % 0.29 % 0.02 %
USD Coin1.002 0.59 % 0.14 % 0.03 %
BNB224.94 2.01 % 3.14 % 1.81 %
Binance USD1.000 0.96 % 0.17 % 0.01 %
XRP0.3320 0.13 % 2.29 % 1.06 %
Cardano0.4665 0.96 % 1.54 % 2.88 %
Solana34.68 2.50 % 5.23 % 9.24 %
Dogecoin0.06742 1.72 % 0.60 % 5.11 %

Bitcoin (BTC) $ 20,355.00
Ethereum (ETH) $ 1,096.25
Tether (USDT) $ 0.998444
USD Coin (USDC) $ 0.999794
BNB (BNB) $ 223.56
Binance USD (BUSD) $ 1.00
XRP (XRP) $ 0.332272
Cardano (ADA) $ 0.468119
Solana (SOL) $ 34.76
Dogecoin (DOGE) $ 0.067488