Crypto Goes Official

04 CRYPTOCURRENCIES RACONTEUR.NET 05 ollo via GettyImages via ollo $1tn BANKING the market value of all the world’s cryptocurrencies surpassed the record-breaking $1tn mark in January 2021 Crypto Bloomberg, 2021 goes oﬃ cial the UK relied on cash in 2019, according to trade body UK Finance. That’s down from close to 60% in Central banks are getting into the digital 2009. Contactless payments have proliferated during the pandemic – currency game. For the crypto sector – a trend that CBDCs, being wholly and monetary systems more generally – virtual, will almost certainly accel- erate. This could disenfranchise the consequences could be seismic poor, rural and elderly communities that rely largely on cash. It’s possible, however, to make quite the opposite argument: that Alasdair Lane CBDCs will actually advance the cause of fi nancial inclusion. For rom bitcoin to ethereum, Bahamas, Cambodia and China are people estranged from the banking F digital currencies have been leading the pack. Each nation has a system, there’ll be no need to apply heralded as a new dawn for pilot CBDC in circulation and there for a bank account or cash card to money. They allow for faster, cheap- is speculation about a national roll- access their money. All they will er transfers, promote fi nancial inc- out in China next year. need is an electronic device. lusion and off er greater privacy, Eager to make up ground, though A shift away from cash could also according to their proponents. fundamentally more cautious, west- help authorities to crack down on But the promise of anonymity has ern economies are moving ahead fraud, because it would be harder also made them a favoured fi nancial with their own CBDC plans. In April, for criminals to launder large sums medium for fraudsters and other the Bank of England and the Treas- with less physical money in circu- criminals. And, beset by explosive ury created a task force to examine lation. Similarly, banks will fi nd it volatility, they fall far short of being the potential of a digital pound, easier to keep track of currency a viable payment method. But what snappily named “britcoin” by the movements, with the ownership if that were not the case? chancellor, Rishi Sunak. Nerve centre: there is an alternative system of unlikely to change, even with cen- with today’s electronic cash, the of every electronic token digitally For monetary authorities world- Yet, as the case of Facebook’s Diem the European digital currency that’s supported tral banks in the game. intermediary role of these banks documented – helpful when dealing wide, this is the trillion-dollar ques- shows, some hefty regulatory road- Central Bank’s and regulated by central banks, Perhaps the more pertinent ques- would, in theory, be very limited. with issues such as tax avoidance. HQ in Frankfurt is tion. Spurred by the crypto sector’s blocks remain. For instance, G7 where monetary people will migrate over to that sys- tion is whether CBDCs will squash If there is an With money held directly by the But this sort of surveillance cap- meteoric rise, dozens are looking central bankers and fi nance minis- policy for the tem, not least because their money the growth of global stablecoins customer (on their phone or other ability has ramifi cations for civil at creating their own central bank ters have decided that stablecoins eurozone is made will be guaranteed.” such as Diem. While they could well alternative system digital device) why involve a poten- liberties, analysts argue. One expert digital currencies (CBDCs) – virtual – cryptocurrencies that peg their Ten pounds, dollars or euros of coexist in a shared regulated sys- tially costly middleman? with concerns in this area is Sabrina money that replaces cash with elec- market value to an outside asset, CBDC would, in other words, always tem, certain rivalries are likely to of digital currency The answer, according to Anthony Rochemont, a member of the cash- tronic tokens. such as gold or the dollar – carry be worth 10 pounds, dollars or euros, emerge if non-state virtual curren- that’s supported Culligan, founder and chief engi- less society working party at the Done correctly, this could democ- systemic risks. They reiterated at backed by the full faith and credit of cies off er their customers interest, neer at blockchain company SETL, Institute and Faculty of Actuaries. ratise fi nance, clamp down on crime their meeting in early June that the government. Cryptocurrencies, throwing the gauntlet down to and regulated by is expertise. “There’s still going to “Privacy is a major concern,” she and off er far greater effi ciency. Yet tighter regulations need to be ap- on the other hand, are prone to CBDCs, which aren’t expected to central banks, have to be somebody who curates says. “It is related to trust in both deep in CBDCs’ digital DNA are plied before permission to launch violent swings in value, hampering carry fi nancial incentives. us into this digital money world,” governments and big technology concerns about state surveillance can be granted. their ability to serve as a serious A showdown between a stablecoin people will migrate he says. “The Bank of England is a companies. If accounts are held with and individual privacy, as well as The same applies to their own payment medium. and a CBDC would not be a bad thing over to that system small place. It’s not going to be run- a payment service provider and the prospect of a cashless society CBDCs: G7 fi nance ministers con- Then again, this speculative na- for consumers – competition drives ning a service for 50 million custom- the use of a CBDC is free of charge, that might not work for all. cluded at their meeting that all ture is precisely what appeals to so down costs, after all. But there is one ers. It couldn’t do it, because it’s not consumer and transaction data may For years, central banks had little digital currencies must operate many crypto enthusiasts. Rather group that will be watching the a technology organisation in the become the revenue stream for pay- more than a passing interest in “within appropriate privacy frame- than treating their holdings as a development of digital money with same way as commercial banks are.” ment businesses. Most of us leave virtual money. This situation chan- works and minimise spill-overs”. viable currency, most view them as trepidation: commercial banks. The cash economy is likely to be vast trails of data in our daily lives as ged abruptly in mid-2019 when This commitment to regulation is assets, hoping for stratospheric re- As CBDCs are a complete replace- less resilient. The disappearance of we seek convenience. Whom do you Facebook stated its intention to the single biggest diff erence be- turns, or as hedges against infl ation, ment for physical money, not simply physical money is already well ad- trust more with your data: a central launch Libra, a proprietary digital tween CBDCs and cryptocurrencies taking the place of gold. That’s a representation of it, as is the case vanced: only 23% of transactions in bank or private businesses?” currency that would monetise its such as bitcoin or ethereum. The sprawling social network. two types are likely to share some “After Facebook’s announcement, foundational technology – namely: CONSUMER PREFERENCES FOR A CENTRAL BANK CRYPTOCURRENCY IN THE EU Eurosystem, 2021 central banks became concerned blockchain, a distributed electronic about monetary sovereignty,” ex- ledger that enables transactions to How would you rank, in order of importance, the features that a digital euro should offer? plains Ole Moehr, asso ciate director be recorded and accessed in real of the GeoEconomics Center at the time. But cryptocurrencies are un- 43% Privacy Atlantic Council, an international regulated and decentralised, gov- think-tank. “They were – and still erned not by a single entity but by 18% Security are – worried that they might lose a disparate band of online custo- Absence of 11% that sovereignty” if a digital cur- dians. By defi nition, a CBDC is con- additional costs rency such as Diem (Libra’s new trolled by a central body. 9% O f ﬂ i n e u s e name) gains popularity among the The arrival of CBDCs could there- platform’s 2.8 billion users. fore precipitate the demise of their 8% Usability across Two years on, central banks are unregulated forebears, according to the eurozone scrambling to catch up. The Atlantic some experts. 5% Ease of use Council’s GeoEconomics Center, “CBDCs certainly throw the use Speed of transaction which tracks CBDC development case for bitcoin and ethereum as 4% settlement globally, found that 35 monetary currencies up into the air,” says Integration with % authorities were researching virtual Susannah Streeter, senior invest- 3 smartphones/terminals currencies in mid-2020. Today, that ment and markets analyst at fund <1% Availability of a dedicated total has more than doubled. The manager Hargreaves Lansdown. “If physical device 06 CRYPTOCURRENCIES RACONTEUR.NET 07 Commercial feature UTILITY CRYPTOCURRENCY IS A GLOBAL PHENOMENON: For long-term crypto gains, look to utility Who benefited the most from the 2020 boom? Bitcoin generated a The bitcoin price Cryptocurrencies ranged from $4k to $64k Crypto has $64k to $34k in the with utility are a low-to-high return $34k % in 2020 last 15 months smart investment Utility is the 642 lifeblood of the always held for the long haul, Shutterstock via L Hanson crypto ecosystem. $4k according to 15 months Without it, there’s the key to industry experts only speculation its future: 2020 Estimated realized bitcoin gains by country their side right now, but they are unlikely to survive in the long term, argues Mathieu Hardy, chief dev- transparency elopment officer at crypto-focused Rich McEachran fintech company OSOM.

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