The 44-page report, commissioned by CPA Australia, examines the state of digital currency development for central banks worldwide, and examines viable blockchain candidates to host the central bank’s digital currencies in the coming years.
The report provides estimates for the three most traded cryptocurrencies – Bitcoin (BTC), ETH (ETH) and XRP – and analyzes their suitability (or inadequacy) for the use of central banks.
The report notes that Bitcoin’s decentralized network and lack of supervision by banks or authorities make it generally unsuitable for use on the digital currency network of national central banks. Although Bitcoin was still considered a means of exchange worldwide, its volatility and unpredictability led to a lack of confidence among central banks. The reports say:
Bitcoin, although not a legal tender, is popular and accepted as an exchange in many places. The price of bitcoin has fluctuated a lot in recent years, and this fluctuation has led to mistrust of bitcoin as an exchange or store of value and has raised concerns among central banks about the viability of cryptocurrencies, such as the major digital currencies. ”
While Bitcoin continues to confuse and overwhelm lawmakers in most jurisdictions, the report also indicates that its legal status as a currency is changing. The report cites a 2020 ruling by the Commercial Court of Nanterre, France, which announced: “Bitcoin is an intangible asset whose exchange value is legally equivalent to paper money.”
This, combined with the UK Supreme Court ruling in January 2020 on the recognition of digital currency as real estate and the NSW District Court ruling in February 2020 on the recognition of digital currency as a store of value, gives the legitimacy of digital currencies and cryptocurrencies credibility from both a legal and economic point of view. terms. Look, ”it says.
Ethereum faces many of the same risks as Bitcoin when it comes to CBDC hosting, according to the report. Although “programmable money” is allowed through the use of smart contracts, Ethereum’s decentralization and inability to control it by any authority makes it an unlikely candidate to host significant digital currencies. The reports say:
“ETH is similar to Bitcoin in the sense that it is completely digital and completely decentralized outside of any government control. An important feature of the Ethereum platform compared to the Bitcoin blockchain is that it allows the use of smart contracts and therefore programmable tools. and payments “.
Contrary to Ethereum’s alleged inadequacy for use in government systems, the RBA used Ethereum-based technology in November 2020 when it sought to develop evidence for the concept of the CBDC token.
A slightly more optimistic view of the use of Ripple and XRP is offered. According to the report, the Ripple network and the XRP currency are better seen by banks and governments due to their centralized nature. The reports say:
“Many banks rely on Ripple and XRP as the central bank’s digital currency models because they are highly centralized and rely on a licensed network where only a particular network node can verify transactions, unlike Bitcoin and Ether, which are decentralized and unlicensed.”
The report argues that the centralized nature of Ripple’s operations makes it similar to central banks, given how developers control the “delivery time and quantity” of the associated tokens. It says, “Ripple also allows new currencies to be created, and Ripple’s developers can determine the time and volume of the offer that is similar to the current operation of a central bank.”
The report also notes that Ripple “does not operate on the blockchain network per se”, referring to the Ripple Protocol’s consensus algorithm, which rightly claims to be Ripple’s proprietary technology.
The report indicates that the French central bank, Bank of France, has already expressed interest in exploring Ripple as a potential platform for placing European central bank currencies in Europe.
Thus, the report notes that the COVID-19 pandemic has accelerated digital transformation, which has led to faster development of digital payment systems, blockchain projects and the financial technology sector as a whole.
Between the rise of Bitcoin and the rise of financial infrastructure such as Facebook Libra (now Diem), central banks are forced to keep an eye on the ongoing development of blockchain and cryptocurrency projects.