Crypto leaders should stop flirting with CBDCs

Central bank digital currencies (CBDCs) offer governments the ability to exert absolute control over currency. They should be rejected by all fair-minded blockchain leaders, but that unfortunately is not the case.

In June 2023, the International Monetary Fund (IMF) noted that most cryptocurrency innovations have come from the private sector. But it praised central banks for “catching up” through the experimentation of CBDCs and creating state-controlled instant payment systems — like Brazil’s Pix.

CBDCs are an experimental form of digital money created by a country’s central bank. They are generally controlled through a private network and are both centralized and programmable. This means that central banks can track, monitor and edit transactions. Such capabilities grant authorities extensive control over money flows — including the power to impose spending restrictions, set “expiration” dates on consumers’ savings, and even remotely freeze or seize money. And by 2030, CitiGroup predicts there will be $5 trillion in CBDCs circulating in the global economy.

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While some crypto leaders have been quietly concerned about the rise of CBDCs and what they could mean for privacy, democracy and rising authoritarianism, others have openly supported them — even as they paradoxically promote the advantages of decentralized technologies.

Consensys, the owner of MetaMask and Infura, is one example. It is widely recognized as a foundational force in blockchain technology. It also has an incredibly flirtatious relationship with CBDCS. In partnership with Visa, Consensys is crafting new infrastructure designed to bridge central banks with traditional financial institutions. Other cryptocurrency projects — including Ripple (XRP) and Stellar (XLM) — have likewise been active in allowing their blockchains to be used in the development of CBDCs.

Ripple’s native cryptocurrency, XRP, operates on a decentralized public ledger akin to Bitcoin (BTC) or Ethereum (ETH). Yet, in 2021, Ripple introduced a CBDC platform on a separate, private ledger designed specifically for governments, central banks, and financial institutions. This setup allows these entities to exercise complete control over their newfound digital currencies.

Conversely, Stellar advocates for creating CBDCs on its public blockchain, albeit with custom adjustments that allow centralized entities to enhance governance. Within its CBDC Guidebook, Stellar suggests managing monetary policy and programmability centrally but maintaining a decentralized approach to the technological infrastructure and service delivery.

In a perfect world, you’d hope major blockchain players like Ripple and Stellar — with their significant banking connections — could use their influence to resist CBDCs on morality grounds, despite the tempting business prospects they present. Yet, even in an imperfect world, it would be impactful for them to openly discuss the real long-term threats of CBDCs — particularly the risks of giving governments overwhelming financial omnipotence.

Of course, blockchain pioneers might be happy to see their formerly marginalized technology now discussed in high-level forums such as the IMF and Davos. Yet, while this recognition may be gratifying, it doesn’t translate into a victory for the ideals of blockchain technology. It’s quite the opposite: CBDCs compromise the core principles and benefits of blockchain — such as immutability and decentralization.

Can governments be trusted with such power? Historically, the answer is “No,” even in the West. Canada served as one example in 2022 when Prime Minister Justin Trudeau activated the Emergencies Act to unconstitutionally freeze bank accounts linked to anti-lockdown protesters. United States President Franklin Delano Roosevelt provided another example when, in 1933, he signed an executive order mandating that citizens hand their gold over to the federal government — or face up to $10,000 in fines and 10 years in prison.

Regardless of the consumer safeguards that may be implemented within various future CBDCs, governments will certainly retain extensive control to modify, adjust, and redefine the rules governing this future form of money over time.

Related: Solana illustrates the dark side of monolithic blockchains

When it suits them, western governments will impose financial sanctions against their own citizens for political means. It’s not rocket science to understand embracing CBDCs risks emboldening and normalizing the use of these measures.

Cryptocurrencies have been mocked, ridiculed and admittedly have a PR problem following the collapse of FTX and other scammers in the industry. But despite all of cryptos‘ challenges, its technology, applications and ethos makes the need for CBDCs redundant. We don’t need CBDCs for fast, low-fee, accessible transactions for all. Crypto can already do it.

With KYC (know your customer) measures, governments can already monitor, tax income and crack down on money laundering in crypto where it arises, without the need for excessive centralized control.

CBDCs could be the start of a very slippery slope towards an authoritarian new norm. It’s up to our greatest minds and leaders in both blockchain and beyond to wake up and stop flirting with CBDCs. Thought leaders can actively fight back by supporting decentralized alternatives. However, being more vocal in both opposing and challenging CBDCs will empower others to do the same.

The current bull run will draw in millions of new investors and enthusiasts — maybe up to 1 billion by the end of 2025. Let’s leverage this publicity to spread the word that CBDCs are not the only way forward.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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