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The end of your finances as you've always known them

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Authored by: @hetty-rowan

Sleepless nights

After I couldn't get to sleep last night, I thought I'd better start preparing the post for LBI. Finally, the next day would be soon enough, and then my 'obligation' begins to have my 3 posts per week appear again on the LBI account. A free write on Sunday, but it didn't become very light-hearted, I'm afraid ... and is it really an easy post to read (struggling)? I have my doubts about that. Lol!

Anyway. After typing away for a few hours, I went to sleep, and that I'm really awake, it's time to post this LONG blog after I cleaned it up a bit.

Good luck with reading, and if you get to the end give yourself a pat on the back, because you certainly deserve it!


CBDCs

You have probably seen the term CBDC before. Not an unfamiliar term for those who have been using this at Leofinance for some time and who actually read what the other has to say. I mean, I certainly remember reading more about it. If I'm not mistaken @taskmaster4450 wrote about it multiple times. And there will certainly be several. In short, most of you probably know what CBDCs are by now. But if you don't know it yet, or don't fully understand it, or if you want to read everything again. Then feel free to read on. Because I am writing this blog for you today. So let's start at the beginning... and tell;

WHAT IS A CBDC?

The name CBDC stands for Central Bank Digital Currency. And that can be translated into a digital version of the fiat money that we have all known and used for years. Think, for example, of the US dollar, the Euro and the British Pound to name just a few examples. Since the inception of the Cryptocurrency, of course, all countries have been keeping an eye on this. We have seen several times that a country announced a ban on crypto. We've seen plenty of reports from China that ALL crypto is being banned, all because they see crypto as a direct competitor to today's monetary systems. Now that El Salvador has become the first country to declare Bitcoin as a legal tender, there is a need from other countries for an alternative to reclaim the regulation. And many countries have started developing their own CBDC. So they do this mainly to regain control over monetary policy.

DIGITAL DOLLAR / EURO

In every country you have the Central Banks, they provide credit and spend money through an umbrella organization. In Europe, it is the European Central Bank (ECB), similar to the Federal Reserve System in America. It is important to know that the money you have is only spent by the ECB / Fed.

The money in your bank account is not issued by the ECB, but by your own bank. This can have advantages, but also major disadvantages. What if your bank goes bankrupt? Yup, you could lose all your money in your bank account. Not such a nice thought, right?

A change that we have seen in recent years, and which all banks are also working hard towards, is that we are seeing less and less cash flow. Remember very carefully, Cash is King! Nothing can be tracked with cash, everything can be tracked electronically. Despite this, Electronic payments have grown enormously and there are more and more possibilities to pay digitally. Take a look around you and register all payments for yourself that you make digitally. Then you will notice that there is not much left to do with cash. Do you still have cash in your wallet at all, or are you also someone who only swings around with a debit card, credit card or telephone or smartwatch? You're not the only one! And that is why Central Banks are investigating the possibilities of using a digital currency.

MONETARY AUTHORITY

If we keep in mind that the blockchain technology originated from an anti-movement to the current monetary system. Then it is ironic that it is precisely these third parties, such as banks and governments, who also want to make use of blockchain technology. They have always had the right to make decisions about our financial affairs, which makes us feel very limited, and in fact we are!

With the emergence of Bitcoin, and after that all other cryptocurrencies, we have found an opportunity to regain full control over our own finances. This means that more and more investors are now finding their way to crypto.

In response to this, banks and financial organizations are sounding the alarm en masse. They are about to lose their grip on monetary policy and authority. Until a few years ago, you were rewarded with interest if you put your money in your savings account at a bank, so that they could use it. Now the interest rate is negative! And it is precisely the latter that makes banks no longer interesting at all. In response to these developments, governments are fully exploring whether they can use blockchain technology against us crypto owners. They are looking at whether they can take back control of your finances with this Blockchain technology. And they want to do that by developing a Central Bank Digital Currency. Also known to everyone as CBDCs.

Now that everyone knows what CBDCs are, let's look at the next bit.

DECENTRALIZED & CENTRALIZED BLOCKCHAINS

One of the key features of Crypto is decentralization. No need for third parties. A peer-to-peer network that is controlled and controlled by all participants of the network. Here, everything happens on the basis of a consensus algorithm, where changes are only possible when a majority of a network approves something. To date, virtually the entire crypto ecosystem consists of decentralized networks that are evolving every day.

Now countries, and therefore Central Banks, are coming with their CBDCs. Having a digital currency is an interesting fact for them. The fact that cash is already being used less and less, the digitization that continues. It is a small stepping stone to digital money. But the big difference they want is that their CBDC is not decentralized, but centralized!

All from one central monetary policy, with the government still in full power! And the latter, that can be very dangerous. Because besides being able to fully control how all money is spent, they can also block money from being spent.

Currently, a distinction is made between 2 different types of CBDCs based on their purpose.

  • Wholesale CBDCs

Wholesale CBDCs are used by financial organizations to handle bank-to-bank transactions. This digital currency is suitable for, among other things, holding reserve deposits with a central bank. This form of digital currency can help improve the efficiency of payments, among other things. In addition, this also resolves concerns regarding the liquidity of the digital currency. The system is based on a ledger and makes it possible to set certain conditions, thanks to blockchain technology and the use of smart contracts. For example, no transfer will take place if a certain condition is not met. As a result, bookings can be automated and payment transactions run more smoothly. Wholesale CBDCs can support reserves at the central bank through a restricted-access digital currency. This token would serve as an asset in the form of a digital euro with the central banks. This means that transactions are completed without intermediaries. These Wholesale CBDCs are seen as the most favorable alternative to central banks. They improve the speed and security of the financial systems, while reducing costs.

  • retail

This digital currency specifically targets the people. A government sees many advantages here, because it can accelerate the transition to a cashless society, whereby they in turn have much fewer costs in, among other things, the creation of money.

This is subject to the condition that this form of CBDC must be accepted as legal tender and as a secure store of value.

An important feature of retail CBDCs is that it must be distributed with the fiat variant at a ratio of 1:1 and that it must be freely exchangeable for cash from commercial banks. In short, a 10 euro banknote is also worth 10 digital euros. Nothing more, nothing less! The value always remains the same.

Benefits of CBDCs

There are a few advantages to CBDCs, and that is through the use of blockchain technology. So let's discuss a number of advantages and how they can be applied in practice:

  • Monetary Policy Implementation

Current monetary policy is characterized by the fact that many intermediaries are needed, and as a result a simple transaction or transfer still takes an enormous amount of time. By using blockchain technology, these CBDCs can facilitate this policy in a simple way. This digital euro or dollar automates the process between banks, allowing transactions to go much faster.

  • Exclude human errors

Another advantage is that human errors can no longer be made. We have seen in the past that the biggest mistakes have been made in the payout of trades. I take a look at the country where I live, the Netherlands. Where the allowance affair will go down in the history books as one of the biggest human errors ever!. Thousands of people were unfairly taxed based on various factors. Many of these people are still waiting for the money they have owed from the tax authorities for more than a year. Speaking of human errors… By using CBDCs, the risks for these types of errors from third parties can be eliminated.

  • Preventing illegal practices

And an advantage of a CBDC is that illegal practices can be prevented. There is less and less cash in circulation, and the largest banknotes of the Euro are already being rejected in more and more places. All this to prevent illegal trade, but of course this also causes inconvenience for you if you want to make an expensive purchase in cash! The use of a CBDC, such as a digital euro, can ensure that this illegal practice can largely disappear.

Through the use of blockchain technology, all transactions are recorded and can then also be checked. This can prevent illegal activities and transactions.

Disadvantages CBDCs

Make no mistake after reading the benefits. Because CBDCs also have drawbacks. And these may outweigh the few benefits.

  • Privacy

The first, and perhaps the biggest drawback of CBDCs is the complete lack of privacy. This centralized bank collects all digital information about you as a person. Which transaction you make, how much money you send and receive and also to which person. An entire network is exposed that can affect your integrity and privacy. Such information can be harmful to you as a person, but can also have far-reaching consequences. From their central position, these Central Banks can, for example, prohibit transactions between certain citizens or parties.

  • Regulation

Governments can deny, or even block access to certain individual accounts, in order to make transactions or certain purchases impossible. An example of this is that it could be that China in this way makes the purchase of Bitcoin impossible for the Chinese population.

Although this sounds quite unrealistic for most people, there are enough examples that there are different technologies being used, where people are already digitally controlled and sanctioned. And this is a reason to see it as extremely dangerous for governments to have full control. It becomes much more easy for countries for oppressing their populations or fail to respect human rights.

  • Centralization

What is the most important aspect for this CBDC, namely the central character, is also a major disadvantage. The use of a potential digital euro also poses many dangers, including cybersecurity. Everything is kept in one central digital place. In concrete terms, this means that only one successful hack needs to be done before the hacker has access to all your financial resources, as well as all personal data.

Influence of CBDCs on crypto

CBDCs have their roots in the development of crypto, despite the fact that they are both fundamentally different. Crypto such as Ethereum (ETH) and Bitcoin (BTC) are decentralized and autonomous and therefore not regulated by a central organization and/or government. Given that Bitcoin is increasingly taking shape as a legal tender, such as in El Salvador, these CBDCs and Bitcoin can be seen as each other's competitors.

The big difference here is the principle of scarcity. There are only 21 million Bitcoins in circulation, with an infinite number of digital currencies that can be created, which remain in the hands of a central government.

The implementation of a Central Bank Digital Currency could also lower the barrier to the crypto market. At the moment it is still unknown territory for many and they are therefore hesitant. But this will also take time. Only when the use of this digital euro becomes common will we become more familiar with digital wallets en masse, but for that we must first look at the long-term developments.

The fact that governments worldwide are developing or launching their own digital currencies is a very powerful message for the world of crypto. Blockchain and crypto are here to stay and we are still at the dawn of this revolution.

The development of CBDCs

The question is, of course, how realistic the use of CBDCs are and what the development is. Crypto is still a young market, but we are seeing even large institutional organizations buying in and showing an increasing interest in this new financial revolution. Central banks cannot lag behind and are already busy exploring how to design and implement their own CBDC.

Atlantic Council

On the Atlantic Council website you can see which countries are developing, or even implementing, their own CBDC. In fact, there are already 5 Caribbean countries that have already launched their own CBDC,

including:

  • Bahamas
  • St. Lucia
  • Grenada If we look at the rest of the world, we see how many countries are actually already developing or even have a pilot version of their own CBDCs:

CBDC in Development

  • Canada
  • Brazil
  • France
  • Switzerland
  • Turkey
  • Russia
  • Japan
  • South Africa

Running a Pilot with CBDC

  • Dominican Republic
  • Sweden
  • Lithuania
  • Ukraine
  • Saudi Arabia
  • China
  • Thailand

Recent news reports that China is banning crypto and Bitcoin -once again- may be linked to developments in China's CBDC, some say.

Monetary systems need to change

In recent years, we have become increasingly aware of money and the future of our money. The current monetary system has been under fire for some time and with the rising popularity and applications of crypto, banks and central organizations feel increasingly threatened.

Yet they also realize that something has to change in the current rigid system. That is why countries worldwide are now experimenting with Central Bank Digital Currencies. The use of the revolutionary blockchain technology, but instead of the popular decentralized character, they obviously use a central character.

How do you see the future? Will we be living in a society where we can no longer use fiat money and where we only pay using a digital currency? The developments that will take place in the coming years will therefore determine the further course of all financial systems.

Whichever way you look at it, whatever opinion you have about it. It is safe to say that we are at the start of a whole new financial world!

Have a happy Sunday guys and gals!

Posted Using LeoFinance Beta