This is an opinion piece by Shinobi, a self-taught educator in the Bitcoin space and tech-minded Bitcoin podcast host.
Debate over the US Central Bank Digital Currency (CBDC) has escalated again since the recent White House report on Bitcoin and cryptocurrencies. Will they make it? How long will it take? Governments, of course, will take advantage of the broad increase in oversight and powers that the CBDC will bring. right?
In their own report, they noted increased efficiency as a payments platform, faster cross-border payments, economic growth and stability (easier control of monetary policy), cyber and operational risks (security of financial institutions), breaches), protect the privacy of sensitive data, and minimize the risk of fraudulent financial transactions. In other words, they want a complete view of your entire financial activity, whether it’s depositing money directly into people’s accounts for stimulus or monetary policy purposes, or arbitrarily blocking “illegal activity.” I want to Dizzying targets mean who knows what the next year will bring.
In 2017, the average adult made 41 economic transactions per month, about 12.4 of which were in cash. Looking at these figures, this means that there are approximately 3,192,200,000 cash transactions in the US each month. Compared to Bitcoin in napkin math, ignoring the efficiencies gained through transaction batching and other optimizations, Bitcoin’s blockchain processes on average about 3000 transactions per block and 1,300 transactions per month. It reaches the figure of 10,000 transactions. Therefore, to replace just the average volume of cash transactions, CBDC would need to process 246 times more transactions than Bitcoin each month. And it will only replace cash, it won’t rip off debit and credit card payments or absorb a portion of the payment volume of fintech apps like PayPal and Cashapp.
Such systems require the kind of uptime currently found in payment systems such as Visa and Mastercard. Think about how often basic digital government services fail and go offline. Has there ever been a tax year when the IRS payment portal was overloaded and didn’t crash? Anyone remember the Obamacare website debacle and constant crashes and failures? Do you really think you can process your own and facilitate the kind of payment volumes needed to provide a digital alternative to cash without massive failure? What happens when users lose their funds? ? Losing their phone? Will things break? Large companies such as PayPal and major banking institutions have spent years, even decades, building customer support systems to handle such roadblocks and problems. A frustrating ordeal before actually solving the problem. Do you think the federal government can handle such a task?
Now let’s see what impact such a CBDC system would have on the current financial system. Ostensibly, the Federal Reserve (or maybe the Treasury Department?) will run a system that provides financial services and functions directly to consumers. That is the role private banks and financial service providers currently play in the economy. The Federal Reserve does not offer direct-to-consumer tools or services. They provide accounts to financial institutions to hold reserves with the Federal Reserve and settle transactions between financial institutions using the Fedwire system. Introducing a consumer-facing CBDC would begin the inevitable disintermediation of these private companies in the financial services market, given that financial services account for about 7.4% of U.S. GDP. , the process would have a significant impact on the US economy. It depends on how deep the CBDC has penetrated that market. How many people would choose to use CBDC over Cashapp or PayPal at JP Morgan’s bank? If it’s a significant number of people, this will have a huge negative impact on the financial sector.Everyone who withdraws money from these institutions and instead chooses to hold his CBDC will be forced out of the bank. It is the person who withdraws the deposit and has less reserves to trade.
What about cross-border payments? How does it work mechanically? CONNECTING TO LEGACY SYSTEMS LIKE SWIFT Do you just send CBDC tokens directly to someone in a foreign jurisdiction? How will KYC and AML be enforced if it directly facilitates the international transfer of the CBDC itself? Doesn’t this extend both data collection and direct financial control of the US government into foreign territories?
In summary, the technical effort to implement such a system is immense and far beyond the capabilities of governments. The introduction of such a system would directly eat into the profits of private financial companies and, if successful, would have a devastating impact on the US economy. Trying to deploy this as a cross-border payment tool makes no difference or there are huge political implications for doing so. So what’s the reality? His CBDC in America, largely envisioned, will never materialize. It is completely unrealistic on a technical level and, if adopted on a serious level, would result in a highly disruptive restructuring of the US financial services sector.
What could actually happen? Even more the same. There is no way the US government can really handle building a CBDC system for consumers, but companies like PayPal, JP Morgan, and Amazon can handle such a system very well. They have decades of experience building back-end infrastructure for digital systems with large user bases on the order of the US population, and experience handling the design of consumer interfaces for such systems. there is. The type of support infrastructure required to enable consumers to address issues when systems are not functioning properly.
There is no Federal Reserve CBDC app that interacts directly with the backend database. Fedwire was overhauled or expanded to allow companies like PayPal and Chase to build private apps and siled databases connected to Fedwire accounts to easily transfer CBDC “tokens.” may be done. The reality is probably not even that, the accounts that currently exist at Fedwire are good enough for a private company. Why go that far to implement crypto or any type of token? Database entries If you’re just talking about. In the PayPal system what’s the point of signing to authorize transactions or store your own keys? What benefits does that add? Absolutely nothing You are not self-storing anything, it’s just an entry that PayPal can freeze, delete, or reject. The big underlying change? QR codes. Many new UI/UX wrappers for the same existing fintech payment apps that have been around for almost 20 years.
In such a system, the benefits of implementing key primitives of systems such as Bitcoin and other cryptocurrencies are literally zero. Distributed databases do not scale. This is basically what every Bitcoiner needs to understand if they are aware of Bitcoin’s scaling challenges. Why introduce such a primitive into a “CBDC”? So people can easily lose access to their funds? Can you impose it on the masses? It doesn’t matter. Just add a QR code that can be scanned and sent, which is fantastic and fresh and fresh for normal people. That alone calls for a “compelling story.”
The CBDC picture is just one giant misnomer slowly pushing into the public consciousness to normalize existing digital payment mechanisms as the new normal to replace cash. Nothing will change. There are no amazing new applications or possibilities enabled by “blockchain”. There is simply a flashier, simpler user interface and a more flexible banking/payment application API. There is no fundamental technological breakthrough with ‘CBDC’. This is purely a marketing campaign and nothing else.
The real problem is the cash itself. Can we spread the word that we don’t need cash anymore? Can we find a way to get such payment apps into the hands of people who currently don’t have access, especially the elderly? With such a system available as an option in the modern world, can you convince people that cash is unnecessary?
Central bank digital currencies are nothing less than the meme at the center of the biggest gaslighting campaign ever attempted by governments and financial institutions to pull the public. Bitcoin enthusiasts should not humor this campaign in the slightest by acting as if CBDC has something in common with Bitcoin and other cryptocurrencies. It’s influencing the operations, gas lighting, and inevitable switchovers that come at the end of all this.
There is no such thing as CBDC. There are shiny new wrappers for fintech apps like PayPal, and tighter integration between them and his Fedwire-like systems.
This is a guest post from Shinobi. Opinions expressed are entirely his own and do not necessarily reflect those of his BTC Inc or Bitcoin Magazine.
The US CBDC story is a fantasy – Bitcoin Magazine
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