Bitcoin (BTC) is a digital, decentralized cryptocurrency that has seen a surge in popularity in recent years. While some see it as a speculative investment or tool for nefarious activities, others believe it has the potential to be used as the foundation for electronic fiat currencies or central bank digital currencies (CBDCs).
A new study from advisory giant Deloitte titled “State-Sponsored Cryptocurrency,” stresses the importance for a complete redesign of the traditional fiat ecosystem which is outdated and inefficient. The study notes that “the payment systems in the U.S. and the rest of the world are in dire need of overhaul” and that it’s time for a change.
The report, while emphasizing that one of the more interesting aspects about Bitcoin is how it can be used to fix what ails traditional fiat currencies, goes on to say that the following five key areas — speed, security, efficiency, cross-border payments and collaboration by a broad array of payment participants — is where BTC can help drive change in the traditional fiat currency.
“What would happen if we combined the best attributes of…cryptocurrencies with the features of an established fiat currency under the sponsorship of a central bank?”, the study asks while arguing at the same time that the result “very well may just be a new method of handling payments that would revolutionize the current system.”
The study further elaborates that with “the potential to…do it without the day-to-day operational need for a centralized organization, whether commercial or federal, the result could truly be transformational.”
The report also points out the various differences and similarities between Bitcoin and state-sponosred CBDCs. For one, Bitcoin is decentralized- there is no one entity that issues or controls it. Bitcoin is also deflationary, meaning that the number of bitcoins in circulation will gradually decrease over time as they are mined.
CBDC, on the other hand, is issued by central banks and is therefore more centralized. CBDC is also inflationary, meaning that more units can be created as needed. Finally, CBDC is backed by the government that issues it, while Bitcoin is not.
According to Deloitte’s analysis, the first central bank to roll out a nationwide CBDC would have a first mover advantage. They would be able to set the standards for other countries to follow and could reap the benefits of being an early adopter. This would provide them with a competitive edge and could make them a leader in international trade.
The first central bank to roll out a nationwide CBDC would have a first mover advantage. They would be able to set the standards for other countries to follow and could reap the benefits of being an early adopter. This would provide them with a competitive edge and could make them a leader in the global economy.
In conclusion, the study notes that “while the scenario posed by cryptocurrencies carries challenges, it could ultimately spawn a series of new opportunities that would…transform the current payments system into one that is faster, more secure, and less expensive to run.”