A 44-page report commissioned by CPA Australia explores the state of CBDC development around the worldand exploring viable blockchain network candidates to host CBDCs in the coming years.
The IS report offers evaluations of the three cryptocurrencies with the most transactions in Bitcoin (BTC), Ethereum (ETH) y XRP (XRP)and analyzes its suitability (or lack thereof) for use by central banks.
Due to Bitcoin’s decentralized network and lack of oversight by banks or governments, it cannot generally be used in a national CBDC network., the report says. Although Bitcoin is still accepted as a medium of exchange around the world, there is a lack of confidence among central banks due to their volatility and unpredictability. The report says:
“Despite not being legal tender, Bitcoin is popular and accepted as a medium of exchange in many places. The price of Bitcoin has been subject to great volatility in recent years and this has led to a lack of confidence in the digital currency as a medium of exchange or store of value and has raised concerns among central banks about the viability of cryptocurrencies. like CBDC”.
While Bitcoin continues to baffle and confuse policy makers in most jurisdictions, the report also notes that its legal status as a currency is changing. The report states that fail of the Commercial Court of Nanterre in France in 2020, said that Bitcoin is “an intangible asset with an exchange value, equivalent to fiat money in law”.
“This, together with the January 2020 UK High Court decision recognizing digital currency as property, and the February 2020 New South Wales District Court decision recognizing digital currency as a store of value, undermines the legitimacy of cryptocurrencies and digital out credibility from a legal and economic point of view. attitude”says the report.
Ethereum faces many of the same difficulties as Bitcoin when it comes to hosting a CBDC, according to the report. Despite allowing “programmable money” through the use of smart contracts, Ethereum’s decentralization and inability to be controlled by any state actor makes it an unlikely candidate to host a CBDC. The report says:
“ETH is like Bitcoin, in that it is purely digital, completely decentralized outside of any state control. An important distinguishing feature of the Ethereum platform compared to the Bitcoin blockchain network is that it enables the operation of smart contracts and thus programmable money and payments.”
Against the perceived inadequacy of Ethereum for use in government systems, The Reserve Bank of Australia used Ethereum-based technology in November 2020When attempt to develop a proof of concept for a tokenized CBDC.
A slightly more optimistic view is given regarding the use of Ripple and XRP. According to the report, banks and governments view the Ripple Network and the XRP coin more favorably due to its centralized nature. The report says:
“Many banks trust Ripple and XRP as a model for CBDC because it is highly centralized and based on a permissioned network where only certain network nodes can validate transactions, unlike decentralized and permissionless Bitcoin and Ether.”
The report says yes the centralized nature of Ripple’s operations makes it similar to a central bank, because of how developers can control the “timing and amount of supply” of the tokens they belong to. He says: “Ripple also allows the creation of new coins and Ripple developers can determine the timing and amount of supply in a manner similar to the current operations of a central bank.”
The report also notes that Ripple “it doesn’t work on a blockchain network per se”referring to the Ripple Protocol Consensus Algorithm (RPCA), which rightly claims to be Ripple’s proprietary technology.
The report notes that the French central bank, the Banque de France, having already expressed interest in exploring Ripple as a potential platform to host CBDC across Europe.
In summary, The report notes that the COVID-19 pandemic has accelerated digital transformationdriving faster development of digital payment systems, blockchain projects and the fintech sector in general.
Between the rise of Bitcoin and the rise of financial infrastructure run by companies like Facebook Libra (now Diem), central banks are forced to keep a close eye on the ongoing development of blockchain and cryptocurrency projects.
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