- China’s CBDC, e-CNY, is supposed to have surveillance over its citizen.
- The US is expected to come up with Freedom Coin.
CBDCs are portrayed as the best in the banking and crypto worlds, but the truth is far from reality. Despite their positive narrative, many believe Central Bank Digital Currencies (CBDCs) could disrupt financial privacy and economic liberty. With the required infrastructure, the concern seems factual, practical, and legit.
Surveillance vs. Freedom Coin – Same concept, different application
Major concerns regarding CBDC might not stop governments worldwide from issuing a digital version of their fiat in the form of CBDC. Take China, for instance; its digital yuan, e-CNY, is designed to enhance government surveillance and control over citizens. Hence it is also dubbed a surveillance coin.
On the other side of the globe, the United States is expected to use its global influence in setting standards for CBDC. The country is known as the land of the free and strongly advocates freedom of speech and the right to privacy. This laid the foundation for the freedom coin model of CBDC.
Is CBDC a Wolf in Sheep’s Clothing?
When Satoshi Nakamoto came up with the concept of Bitcoin, it started a new phase for money. Digital currency could potentially disrupt traditional financial institutions and end government monopoly. To circumvent this problem, many of them started exploring CBDC possibilities. Theoretically, they were looking for a digital version of the fiat currency with an added feature.
CBDCs inherit many benefits from cryptocurrencies; they could facilitate programmable, quick, and round-the-clock payment, at much lower costs, with added benefits of providing financial services to wholesale and retail participants. They may also enhance the central banks’ power in implementing a monetary policy, like directly infusing money into circulation, which could be beneficial in covid like situations.
But when studied closely, the cost of instilling CBDC is very high as it works on a digital ledger; it doesn’t matter if it’s PoW or PoS; it makes every digital payment essentially a “communication event,” which can be tracked and recorded easily. This has also been a problem faced by the crypto industry.
A digital wallet comes with a private key, which is the only identity of the user. Being an open system, it can be tracked and correlated with other wallets, creating a transaction record. This matter is serious, disrupting the privacy in financial transactions, though the addresses are anonymous.
Project Hamilton to Counter the Problem
A multi-year research project of the Federal Reserve Bank of Boston and MIT Digital Currency Initiative could answer this grave problem. Initial results are promising; the recent release includes recording the transactions and not the information about the transactions. This could bring a considerabledifference in privacy.
As per the report published by the American Enterprise Institute, they are extending the privacy principles of the digital dollar. The report highlights two clear perceptions.
- The first is that the US freedom coin should not weaken personal privacy.
- Second, the US CBDC shall not become government surveillance equipment.
The Fiat system was developed over time and has not aged well. But CBDC allows the possibility of inception of the new system, which can be set to cater to required parameters. The inherent technology CBDC gets from the blockchain can be used in good and bad ways. Now is the time to think and develop the new era of and for money altogether!