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Why Central Financial Institution Digital Currencies Are a Unhealthy Thought

by CBDC Insider
November 30, 2020
in Business
Reading Time: 1min read
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Why Central Financial Institution Digital Currencies Are a Unhealthy Thought
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Central bank digital currencies (CBDC) are being sold with the narrative of protecting consumers who are increasingly moving to cashless payments. Some say that these cashless payments will rob us of the privacy advantages of cash while exposing us to bank runs, payment network blackouts, and foreign financial adversaries.

Yet while these risks are real, they would be negligible had it not been for the central banking and financial regulators’ interventions into the market. CBDCs make these interventions worse and introduce some new, much bigger ones.

While the stated intention behind CBDCs is to keep the commercial banks in the picture, these digital currencies will bring their end users closer to the central banks. This is because blockchains and blockchain-inspired distributed ledger technologies are built on a single common ledger, which is distributed either in a permissionless or permissioned manner. The permissionless distribution exposes a lot of information about the network participants but in combination with proof-of-work verification makes it very difficult for an adversary to attack and overtake the network and, e.g., change the inflation rate.

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A permissioned network with no proof-of-work or similar consensus algorithm not only doesn’t provide the immutability feature, but by having a single permissioned ledger gives potential control to those who grant the network privileges. As a result, the central bank as the ultimate permission issuer would have much stronger control over the monetary system and payment network than it has right now. This gives the central banks three very dangerous capabilities.

Read more: https://shepherdgazette.com/why-central-financial-institution-digital-currencies-are-a-unhealthy-thought/

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