Why CBDC’s are Good News for Blockchain Adoption

Why CBDC’s are Good News for Blockchain Adoption

Blockchain
May 20, 2020 Editor's Desk
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Central banks are going into the crypto game; that is a good thing for crypto and blockchain adoption. Cryptocurrencies are quickly becoming part of the mainstream investment conversation. However, that does not mean that the growth of new crypto options is slowing down. Even with the bitcoin halving making news, and the consequent speculation on
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Central banks are going into the crypto game; that is a good thing for crypto and blockchain adoption. Cryptocurrencies are quickly becoming part of the mainstream investment conversation. However, that does not mean that the growth of new crypto options is slowing down. Even with the bitcoin halving making news, and the consequent speculation on the price of bitcoin and other cryptocurrencies, an underlying trend remains to forge ahead. 

Permissioned blockchains and more centralized crypto options remain to permeate the marketplace and seem well-positioned to lead additional adoption and utilization of both blockchain and cryptoassets at large.

One special emphasis of this shift toward frequently centralized or permissioned options is the potential for a central bank digital currency (CBDC). Contradictory when related to the initial idea and spirit of cryptocurrency, there are various reasons why a CBDC makes sense and is a logical next step in the blockchain/crypto conversation.

Why a CBDC makes sense

A CBDC published and directed by a central bank, or other governmental agency will assist push the accounting and reporting dialogue forward. Accounting might not make for splashy headlines, but for any crypto, and by extension blockchain, accounting and reporting needs to be standardized to achieve wider usage. Viewing at the tax issues connected to cryptocurrency alone emphasizes the requirement for standardized and consistent regulatory treatment that does not extinguish further innovation.

An extra advantage of a CBDC is that, in all probability, this crypto will be attached in some way to an existing fiat currency. Stablecoins are a quickly expanding segment of the crypto marketplace, and a CBDC is a logical extension of that existing trend. Mainly, as the blockchain and crypto experience more closely replicates that of traditional banking experience, the more comfortable it will be to increase the user base.

Building on this connection, it would be prudent to anticipate that a CBDC would have lower price volatility than other options recently available. Decreased volatility, and the backstop of a central government or central bank, might also encourage individuals and merchants that have been reluctant to accept or utilize crypto to date. Price swings make headlines, but they might not help the argument that crypto is a legitimate alternative to fiat and stable medium of exchange.

The idea of a CBDC might appear like a new design or something that will need large incremental investments, but that is an inadequate view of the situation. Digital currencies and virtual currencies exist and are utilized by millions of people daily through e-commerce and peer-to-peer platforms. In other words, the infrastructure for a broadly utilized and accepted digital currency already endures, and could help as a model for future CBDC initiatives.

Announcements by various global credit card companies attempting to, in reality, transform enduring fiat currencies to blockchain-enabled digital versions reinforce the opinion that the infrastructure for broader CBDC development already exists.

The concept of a CBDC might appear like a deception of the essence of what blockchain and crypto were deemed to express by the lens of a crypto purist. Recognizing that, it is also essential to keep in mind that the true potential of blockchain and crypto will not be accomplished until it achieves mass-market adoption. Various restrictions proceed to stall wider usage, unfamiliar user interfaces, technical complexity, regulatory ambiguity, and concerns over how to disclose, report, and insure crypto-assets.

CBDCs might not have been the initial concept of blockchain and crypto, but the continued development is great news for blockchain and crypto adoption.

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