We are hearing more about Central Banks Digital Currencies (CBDC). The only problem is they are not likely to have any real impact. I know a lot of people fear them because, after all, the power of government is unrivaled.
Well, the reality is that, when it comes to money, history is the exact opposite. For much of our life with this socially created mechanism, money was in the hands of private institutions. Even today, most believe in the myth of government money not realizing that what they use is in the hands of commercial banks.
Cryptocurrency started with the vision of banking the unbanked. This is what many tapped into early on. What cryptocurrency does is operate outside the reach of governments. This is something that most private money has not done. Even the commercial bank money is heavily regulated.
Of course, now we hear the promise of CBDCs offering a solution to the unbanked. This is not going to happen. It is why stablecoins such as the Hive Backed Dollar (HBD) have such a powerful future.
Why No CBDCs?
In this section we will briefly cover why CBDCs are not likely to roll out. There might be a few sprinkled around the world but the major currencies are not going to have one.
To start, networks have to be powerful. If a country like Paraguay, with a population of 7.3 million, offered a CBDC and each person did 3 transactions a day, that is 21.9 million. That is more than the Ethereum network can handle. This means that a centralized system that is both secure and scalable has to be built. It is not an easy proposition.
Therefore, governments can't just roll one out and say "here it is". Even if this is in the hands of the central banks, when did they suddenly become technology gurus. Have you see the networks most central banks are running? It is a joke. Sending money internationally takes forever due to the fact the international banking network is flawed..
Since they can't do it, private vendors will be responsible. This is not an easy process, something that takes time. We also lack standards. Do you see what is going on with electric vehicles and charging stations? There is still debate about what standard will be adopted. The early days of mobile phones saw the US and Europe on two completely different systems.
Put forth a network that nobody is connected to, nor operating on that standard, and suddenly you have an intranet. This is not ideal for international finance.
Let's us look at Ethereum again. This is a network that came about 8 years ago. It is still struggling to scale up. In other words, building a network from scratch is not easy. Couple that with the fact you are trying to implement a new monetary system at the same time, and we can see how this will take a long time (as in decades) to fully pull off.
Stablecoins Are The Alternative
We know governments all want KYC. This is the final piece that puts the nail in their CBDC. How is someone in Cuba, Paraguay, or Ghana going to provide identification that is satisfactory to other governments? Why would they even want to do that?
The reality is the barrier to entry for a CBDC would be impossible for many people around the world. It is also a system that is primed for fraud. Has anyone really looked at the record keeping in a country like Haiti?
If you think onboarding for a platform like Hive is difficult, try to do this with a CBDC. Here is one of the primary advantages gained by the private sector. CBDCs are being discussed and, perhaps, tested. Cryptocurrency is in the wild, having transactions occurring on a daily basis.
When it comes to banking the unbanked (or even underbanked), a stablecoin like HBD is already serving that purpose. Going back to the foundation, what is a digital wallet and how does that compare to a bank? For most people, a bank is used to send, store, and receive money. That is exactly what a Hive wallet does. Thus, for 90% of the people, a wallet can replace a bank.
The primary aim of CBDCs is to offer digital currency (ignoring the fact that most currencies are digital already) that has price stability. That is one of the primary focuses of monetary policy.
A cryptocurrency such as Bitcoin has an inherent problem when it comes to serving as a medium of exchange. It simply has too much volatility. The same is true for something like Hive. That said, a stablecoin like HBD is the ideal solution since it offers that price stability, especially when using the unit of account that is tied to the largest currency in the world (both dollar and eurodollar).
Low Hanging Fruit
One of the reason why this topic is covered so much here is because when it comes to problems, this is the low hanging fruit.
HBD can quickly penetrate areas where large numbers of people are underbanked. These people understand the USD and have a need for it. When looking at their local currencies, it is a train wreck. There are more than a billion people in developing nations that have a need for USD access since their currencies are being obliterated. HBD serves this easily as well as efficiently.
Find a need and fill it.
When you have a total addressable market in the billions, that is a major need. Here we see how this can be handled by HBD. This is a digital asset that is outside the control of local authorities. It is global in nature, tapping into a larger economy than simply the local one. As the utility associated with it grows, the network effect kicks off, only enhancing the value (not price).
HBD can find its way into every nook that is out there. If someone has access to the Internet, then all is well. It matters none who that person is, where he or she is located, or, quite frankly, what the intentions are. The network does not care. This is a system based upon keys. As long as the individual has it, the wallet can be accessed.
Governments are working top-down. HBD, along with some other stablecoins, are a grassroots movement. This is a major difference. The former has to enlist more experts, offer out contracts for bidding, and a host of other things that take time. With the latter, it is just a matter of the people using it getting others involved. Word of mouth can spread and create situations where a new financial system is erected without the use of centralized entities.
What they hope a CBDC will solve is being addressed by stablecoins. With each passing day, they get further behind.
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