CBDCs are like cryptocurrencies but better!

CBDCs are like cryptocurrencies but better! People with average or zero knowledges about cryptocurrencies would fall for the funny quote above, But here is why CBDC coin is a tool for slavery only.

CBDC stands for central bank digital currency, where banks try to issue their own coin to compete with the mass adoption of the cryptocurrencies and same time maintain their profitability and power among individuals.

BTC came in response to the 2008 financial crisis, whereas, CBDS came in response to the mass adoption of cryptocurrencies.

CBDCs Vs Cryptocurrencies

For starters, CBDCs are not cryptocurrencies. This is because, CBDCs are centralized, permissioned, private, and closed source. With no Jibrish, CBDCs are digital coins that are controlled by the central bank where you must provide detailed personal informations in order to use them, You as well central bank would see your transactions, and only the central bank knows how its CDBC actually works.

By contrast, cryptocurrencies are decentralized, permissionless, public, and open source, In simple terms, cryptocurrencies are not controlled by anyone, you don't have to provide personal information to use crypto, and All transactions can be viewed by anyone in real-time, and anyone can check the source code to see how a cryptocurrency actually works.

Crypto maximizes freedom, and CBDC maximizes control.

A CBDC would allow the central bank to block transactions, freeze accounts, alter account balances and put limits on account holding, Just to mention a few that the Bank of international settlements or BIS, Swiss National Bank, Bank of England, and Board of Governors Federal Reserve System have reported black on white all the features a CBDC would have in their recent report.

Despite the piteous qualities that CBDCs have, almost every central bank in the world is looking to develop its own, and a few countries have already released theirs namely the Bahamas and Nigeria! See the picture below.

Right now central banks can only create money by printing them, With CBDCs, central banks can also burn or destroy money digitally which will allow for keeping inflation under control at the expense of the average citizen's financial privacy and autonomy.

Other countries are rushing to use their CBDCs hoping to protect their national currencies from the dollar $, which is the world reserve currency. The Fed which is the central bank of the United States is under extreme pressure to come up with a digital dollar that would keep any other country or corporate currency or even a cryptocurrency like BTC, under the supreme control of the dollar.

Money and Payment: The U.S. Dollar in the Age of Digital Transformation

In January 2022, the federal reserve board of governance wrote a report name Money and Payment: the U.S. dollar in the age of digital transformation.

Beginning with the executive summary from the report, the governors state the following:

This paper is the first step in a public discussion between the federal reserve and the stakeholders about the central banks' digital currencies.

First things first, the term stakeholders often refers to corporates and governments, but not to individuals. To be fair, the fed made an invitation through its website for US citizens to send feedback regarding the U.S. possible CBDC.

While money can be easily created, it's a lot harder to take said money out

With the economy of the current financial system, central banks around the world, task number 1 is encouraging economic growth or keeping inflation under control.

They do this by raising interest rates in a way that borrowing would be expensive and less attractive, this incentivizes individuals and institutions to save rather than spend which lower economic growth but decrease inflation since there is less money in circulation.

or lowering interest rates in a way that it becomes cheap to borrow and makes saving less attractive, this incentivizes individuals and institutions to spend rather than save which increases economic growth but increases inflation as there is more money in circulation.

now there is one big problem with this economic model and that's while money can be easily created, it's a lot harder to take said money out of circulation which leads inevitably to inflation in long term.

as such, before 1971, this long-term inflation was not a problem, since back then fiat currencies were backed by gold, this puts a limit on how much money could be created in an economy because more gold needed to be acquired in order to issue more money. after 1971, right after the Bretton Woods agreement when gold standards collapsed, we have seen only a long term of inflation where the prices of many assets exploded in fiat terms while staying the same when priced with gold.

The crazy thing is that official inflation statistics didn't show up until very recently, which means these official statistics were adjusted many times to make them seen as less severe. The funny fact that this inflation is starting to show up in official statistics means, it's even worse than authorities are letting on.

Money supply has grown so much, that inflation is off the charts

Individuals and institutions took a pile of debt all over the years when the interest rates were too low. that means raising interest rates too high would make these individuals unable to pay back their debt. Not only individuals, the government as well took a record level of debt in such a way we start to see signs of default in some countries.

From the perspective of central banks, CBDCs offer a solution because, in CBDC, it would be possible for the central bank to easily destroy money as well as issue it and that's just one of many options a CBDC would have.

Retail CBDC, Wholesale CBDC

There are two kinds of CDBCs, Retail CBDC relevant to regular people and Wholesale CBDC which will be used by selected individuals and institutions.

When you read CBDC, it means Retail CBDC and not Wholesale CBDC. The wholesale CBDC is designed for people in power, the Retail will be used by anyone else.

In addition of create and destroy money, CBDCs will make it possible for central banks to freeze CBDCs holding, set limits on CBDCs holding, set expiry dates for CBDCs holding, set location limits for where CBDCs could be spent, set time limits for when CBDCs could be spent, set a limit on how much CBDCs can be spent, Decide what can and can't be purchased with CBDCs, Add a tax to every CBDC transaction, automatically flag or block a suspicious CBDC transaction, Customize CBDC parameters for specific people, Implement negative interest rates by gradually deleting unspent CBDCs holding over time. (No saving allowed).

These are all features that the Bank of Canada, Bank of Japan, U.S. Federal Reserve Bank, Reserve Bank of Australia, and European Central Bank discussed openly recently.

Thinking about this much control in the hands of financial institutions would make any alternative such as cryptocurrencies, a huge threat to government and financial institutions. And it's safe to say that they would do anything on hand to maintain control of the financial system. This is why some financial institutions such as the IMF have outright recommended that countries must use CBDCs as a tool to fight the adoption of cryptocurrency to maintain said control.

Custody Of CBDCs vs Crypto

To make it simple, custody is just a fancy word for how your money or assets are held.

With cryptocurrencies, you have the option of self-custody meaning that you can keep your coins or tokens in a digital wallet that is entirely controlled by you.

Using a hard wallet, personal information is not required to create such a wallet, which means transactions would remain pseudonymous by default, Yes you got it right, not anonymous but pseudonymous, it's totally different.

Pseudonymous because in most of the blockchains out there, anyone could see all transactions taking place on them in real time, and with enough analysis, it's possible to link a pseudonymous cryptocurrency wallet to real-world identities especially when the wallet holder interacts directly or indirectly with a crypto platform that requires KYC such a cryptocurrency exchange.

Actually, this is one of the ways, that blockchain analytics companies could track transactions.

With that being said, unless you are holding your assets in a personal wallet, holding in a crypto exchange platform means that someone is holding your assets under your name. You might think you have control over your crypto with such a setup but in reality, the custodian only lets you make transactions so as long as you abide by their terms and conditions.

If self-custody looks safe heaven for you and if online exchange seems uncomfortable, the concept of CBDCs and self-custody are way far to match. That is because all your CBDCs holding will be kept at central banks.

In terms of privacy, full anonymity with CBDCs is not possible. this is because the central bank needs to be able to track everything in order to impose its control. You would definitely need to complete KYC and the worst part is that the central bank would assign your digital identity a social credit score which will determine what you can or can't do. The result would be a total absence of privacy with CBDCs, and with no privacy, there will be no financial freedom.

To explicit more the dystopian quality of CBDCs, at the network level, the transactions that don't belong to you will not be viewable, only the central bank will be able to see what's going on behind the scenes. Moreover, the technology that powers the CBDCs will be a heck of a closed source, unless that CBDC was issued as a token on a cryptocurrency blockchain, which will be open source since almost all cryptocurrency blockchains are open source.

Borrowing in the crypto economics model would be hard

To tackle inflation, borrowing needs to be hard to poursuit. this is exactlty what BTC is making along the run of it growing value.

BTC economic model

Before diving into the comparison between the crypto-economic model vs CBDCs economic model. We need to study how crypto or BTC specifically has been increasing in value even relative to gold.

When it comes to the economics of cryptocurrency, it really depends on the coin or token we are talking about. We will definitely stick to Bitcoin since it's the biggest competitor to the current financial system.

Unlike fiat currencies, BTC has a maximum supply of 21 million, this supply is created slowly over time, and every 4 years, the new BTC being created would be cut in half. The last BTC will be mined in the year 2140.

Economics basics principles

A gradual decrease in supply combined with more demand results in a higher price

Over the years, bitcoin has seen exponential adoption, which has resulted in an increase in demand while the supply of BTC is on the decline resulting in a high price for the BTC.

The exponential mass adoption and appreciation of the price of the BTC have incentives millions of computers to process transactions on the bitcoin blockchain, which made it extremely decentralized, therefore very secure.

In fact, Bitcoin is believed to be the most secure payment network on the planet, and as computers continue to process transactions on the Bitcoin blockchain, this blockchain will only continue to become more decentralized. This made it the best layer to build financial technologies and leverage its blockchain for its security.

Because, BTC is increasing in value over time even relative to gold, this made it more attractive to save rather than spend.

With the analogy to the current financial system, BTC economic model means that the interest rates are consistently high meaning inflation would be very low or even negative.

To wrap things up, A BTC based economy would be so expensive to borrow, in a worst-case scenario, this could lead to what we call a deflationary death sparrow, where spending decreases, resulting in lower prices, resulting in lower production, and so on so forth until the economy collapse.

The truth is, even this deflationary death sparrow is not real, it's just a theory that the current financial system would like us to believe.

Innovation makes mankind's economy deflationary

In human history, innovation makes everything cheaper as time goes on, which leads inevitably to deflation.

The deflation trend only changes whenever central banks decide to turn the money printer on.

In BTC based economy the BTC would act as gold which is hard money, Moreover, it could back any elastic currency as the gold is used to back national money.

In a contrast with BTC based economy, CBDC based economy would face the same sort of deflationary risks for the same reasons as cash with running the printer digital machine this time. Notice that central banks and commercial banks in order to maintain their profitability, the only way in their hands is to increase interest rates.

Synthetic CBDC

Financial institutions to remain profitable, they come up with something named Synthetic CBDC, which is a stablecoin that would be backed with the country's central bank reserve or assets, or to be more explicit, it would be backed with cash only or in other words the governement debt.

Buying synthetic CBDC or regulated stablecoins, means literally that people would finance the U.S. government by indirectly purchasing its debt which will in turn keep interest rates low, and let the U.S. government fiat Ponzi continue by increasing interest rates for profitability.

C/c

The final question here is whether CBDCs will reach mass adoption. The answer is, the voluntary adoption rate would be according to the international bank of settlement statistics between 4 to 10% in developed countries. Which is significantly lower than the adoption rate for cryptocurrencies. And just the fact that financial institutions are studying the chance of creating the same mass adoption of crypto for CBDCs says it all.

Besides the fan facts that some of the developers choose to work on CBDCs for a six-figure salary at best, most of the people who know how to create distributed ledgers would choose to work on the blockchain rather than a distributed database because it turns out that creating a coin or token can result in something that is objectively useful and valuable. Working for developing a CBDC would paint you as the enemy of society in the eyes of many.

Last but not least, Politicians that are aware of the dystopian quality of the CBDCs would rather choose to propose bills on voting for central banks to roll up CBDCs since they already know that their voters don't want them.

In the end, If this matter to you. share this page with your friends and families to know the difference between CBDCs and good old cryptocurrencies.