As governments increasingly consider introducing their own digital currencies, some are worried that cryptocurrencies will not be able to compete with national financial infrastructure. Ethereum’s co-founder Vitalik Buterin believes that digitisation is inevitable, but decentralised private currencies are more advantageous to many than state-controlled central bank digital currencies.
Buterin: digitisation is inevitable and privacy is king
Ethereum’s co-founder, Vitalik Buterin, talked during the Block TV podcast about, among other things, his forecasts for the future of digital currencies (government and corporate) and the cryptocurrencies- in particular the fate of decentralisation.
Vitalik compared governmental, corporate and decentralized private digital currencies and pointed out the problems associated with central bank and corporate currencies:
The main problem with a central bank’s digital currency (CBDC, like the digital yuan), or even a corporate currency (like Libra), is primarily the concentration of power and/or data collection – to make you dependent on potentially centralised intermediaries who can exercise very little control over who can and cannot participate in these systems.
Vitalik anticipates that fully decentralised and private currencies will be more attractive in the future, as they will be more resistant to ‘centralised checkpoints’. He added that:
We have seen many situations in which even things that are completely legal simply become limited because whoever manages centralised checkpoints simply wants to exclude a certain category of users and I think these are the reasons why people will still be interested in fully decentralised digital currencies.
According to Vitalik, the future of decentralised currencies protecting users’ privacy is promising. However, representatives of central banks and global governments have the decisive voice.
Governments challenge decentralised currencies through the CBDC
The growing popularity of cryptocurrencies and work on corporate digital currencies such as Libra has prompted governments around the world to work on their own digital currencies,” said Hiromi Yamaoka, one of the former heads of the Bank of Japan (BOJ). According to a study by the Bank for International Settlements (BIS), up to 1/3 of central banks in the world are planning to issue the CBDC.
In the case of China, the world’s second-largest economy, work on the CBDC, specifically digital payments in digital currency – DCEP – has been going on for several years now. Chen Weigang, a former vice-president of CIRC (one of the Chinese regulators), recently told the media that the central bank’s digital currency is a strategic project for Beijing, which will allow the country to gain an advantage in international trade. Chen also said that cryptocurrencies should be completely banned in the future and that all Chinese regulators should cooperate to this end.
In the world’s largest economy, the United States, on the other hand, is currently working on a Digital Dollar project to develop a regulatory framework for the possible establishment of a digital dollar. J. Christopher Giancarlo, former chairman of the US CFTC regulator, speaking in Davos, said that many central banks around the world remain sceptical about the CBDC, explaining that the further impact of such digital currencies on the central bank’s national financial system and national economy is still uncertain. Despite these concerns, he believes that the adoption of the US digital dollar is “critical” for the development of other digital currencies by other countries.