Hong Kong’s Crypto Regulation Framework: How Hong Kong is Regulating
Why CBDCs may be a threat to you (and your privacy): The Evil Plan
What is Central Bank Digital Currency? A CBDC is a country’s official currency that may be used digitally by individuals, corporations, and government agencies to make payments and store value. The term “Central Bank Digital Currencies” (CBDCs) refers to digital currencies that are developed and circulated by a nation’s central bank.
Why did CBDC Emerge in the first place?
Long before the COVID-19 outbreak, humanity was gradually transitioning to a cashless economy. However, as a result of lockdowns that forced people inside, demand for paperless, digital payment methods skyrocketed. Government started learning about cryptocurrencies and its uses. They wanted to ban cryptocurrencies, several time, but then they learnt about blockchain and that blockchain is an incredible tech, and is the future. They learnt about the benefits of blockchain. And then thought of how they could make use of this amazing technology (and still have control). This is how the idea of CBDCs emerged in the first place.
Cryptocurrencies vs CBDC: Are they same?
CBDCs and cryptocurrencies are different. Cryptocurrencies like Bitcoin and Ethereum are censorship resistant, decentralised, private, safe, and pseudo-anonymous that protects your privacy.
This is why cryptocurrencies have gained popularity. You control your money.
Additionally, neither the supply of Bitcoin nor Ether may be individually decided, acting as a buffer against inflation.
Things are not the same with CBDCs. Countries launching CBDCs will have complete control over your finances. Everything will be tracked to the T.
Problems with CBDCs (Central Bank Digital Currency)
There are several problems associated with CBDCs
Let us discuss each case one by one:
- Laws are different for CBDCs
- Invasion to privacy rights.
- Individual points of failure
- Uncertainty in Financial Policy in CBDC
- Misuse of CBDCs by the Government
- Financial institution instability caused by CBDC
Laws are different for CBDCs
The government owns these “government-issued cryptocurrencies,” and it has the authority to impose restrictions on their supply, circulation, and usage. Perhaps you are celebrating CBDCs, but you might be unaware that centralized ownership of digital currency raises a number of issues like privacy rights, single point of failure, inflation and much more.
Invasion of Privacy Rights by CBDC
The use of CBDCs will lead to historically unheard-of degrees of citizen privacy invasion. Every transaction—purchase, transfer, and payment—can and will be recorded in a government database for both positive (taxes) and negative (financial monitoring) intentions.
Governments will take on the role of Big Brother, monitoring everyone’s financial activity. A government can readily halt certain payments if it so chooses. This might involve anywhere from purchasing legal marijuana, compensating an undocumented worker, or even sending money to your relatives in nations that are on the sanctions list.
Using cryptocurrency (and not CBDCs) gives you the freedom to deal with anyone directly without any third parties getting in the way.
CBDCs pose a danger to upend this and expand governmental control over inter-individual financial transactions.
Individual Points of Failure in CBDC
The majority of cryptocurrencies are supported by decentralized computer systems on blockchain systems (nodes). A decentralized blockchain system may continue to function even though some few nodes have problems or are attacked because of its decentralized design.
Trying to control majority of the nodes active on the chain is necessary for a Bitcoin hack, which is a challenging, expensive, and unrealistic undertaking.
Because of this, cryptocurrency like Ethereum (ETH) and Bitcoin (BTC) have long been considered safe.
CBDCs will run on private or authorized blockchains and have complete centralization. These may increase transfer speeds, but they also introduce singular points of failure.
Only a small number of systems need to be compromised for malicious players to have complete authority of the nation’s money supply.
Uncertainty in Financial Policy in CBDC
CBDCs are said to facilitate the introduction and enforcement of monetary regulations. To combat economic patterns that are leading to deflation, governments may easily create new currency coins. Inflation is a serious possibility since central banks regulate the supply of CBDCs.
Misuse of CBDCs by the Government
A CBDC vastly enhances the level of governmental control over economic financial movements. This might result in the “weaponization of money,” in which the state uses monetary policy restrictions to demand compliance from people and companies.
To implement financial discriminatory laws, government officials now must depend on outside parties like banks and payment providers. As an illustration, consider how the Nigerian government pressured banking institutions to stop giving to #EndSARS protests denouncing military violence.
National governments could restrict financial assets via CBDCs without relying on banks.
Recently we saw, how Paypal’s new user agreement clause said it could deduct 2500USD from Paypal users who spread ‘misinformation.’
Imagine once CBDCs are rolled out, Government come up with such laws, wherein for everything you say that does not go well with the government, you will be fined 2500USD, which could be easily deducted onchain.
No one will care speak against the Government, and this is one of the reasons why CBDCs are evil and should not be celebrated.
Financial institution instability caused by CBDC
I’ve mostly concentrated thus far on the issues CBDCs provide to people and corporations. However, CBDCs are an issue for banks and other significant financial organizations as well.
An implementation of a CBDC system where the nation’s central bank directly provides digital currency to people and safeguards their investments is the most realistic. The whole commercial banking industry would be destroyed if central banks took the place of private banks.
There will still be issues even with a mixed strategy that divides control of the CBDC flow between central banks and commercial banks. Bank runs could frequently occur because people feel safer putting their money at the central bank than in private institutions. When every bank fails, what do you believe will happen to the economy?
What are your thoughts on CBDCs? Share with us under comments.
Related articles you might interested in:
- Indian CBDC: RBI set to launch eRupee, India’s digital currency
- CakeDefi Now Offers Ethereum Staking; Offers 5% Annual Yield
- Upcoming Blockchain Events and Conferences: 2022 to 2023