Welcome to the 'Bitcoin killer'

[SharperDingaan]

Research courtesy of the Bank of Canada. ‘Central Bank Digital Currency: Motivations and Implications’, Engert and Fung, 2017. https://www.bankofcanada.ca/2017/11/staff-discussion-paper-2017-16/

 

The Benchmark Central Bank Digital Currency (CBDC), Section 3.1, p 8-11 is a Bitcoin killer. It is legal tender backed by a central bank, there is no transaction charge to use it, and no charge for storing cash (security, insurance, etc.). Allow the central bank to track the owners or parties involved in CBDC transactions, and your ‘cash' can even pay you interest – as per the I-CBDC, Section 5.1, p 21-24.

 

Negative interest rates are no longer practical - as all an owner need do is hold CBDC, and rely on the security of the Central Bank server to prevent theft. No more paying the bank for security to hold 'your money'.

 

The logical next step is a World Bank issuing a global CBDC that all citizens of the world can use to transact with each other.

Hello inclusiveness, and bye-bye PayPal, ApplePay, GooglePay, etc. 

 

Taken together, this goes a very long way to wiping out the business case for private crypto-currency. No Bitcoin, no Ether, no ICO. Worse still is that the only people who would use Bitcoin, are those who cannot stand the scrutiny of a central bank – the drug dealers, arms merchants, money launderers, dirty money, etc. And that money cannot get out of crypto – unless you or I buy crypto …. and pay in fiat.

 

Clearly a very, very elegant solution – akin to ‘Raid’ for cryptocurrency.

And pretty hard to see how the crypto bubble remains inflated – when this becomes the very real alternative.

 

What are your thoughts?

 

SD

 

 

[doughishere]

Research courtesy of the Bank of Canada. ‘Central Bank Digital Currency: Motivations and Implications’, Engert and Fung, 2017. https://www.bankofcanada.ca/2017/11/staff-discussion-paper-2017-16/

 

The Benchmark Central Bank Digital Currency (CBDC), Section 3.1, p 8-11 is a Bitcoin killer. It is legal tender backed by a central bank, there is no transaction charge to use it, and no charge for storing cash (security, insurance, etc.). Allow the central bank to track the owners or parties involved in CBDC transactions, and your ‘cash' can even pay you interest – as per the I-CBDC, Section 5.1, p 21-24.

 

Negative interest rates are no longer practical - as all an owner need do is hold CBDC, and rely on the security of the Central Bank server to prevent theft. No more paying the bank for security to hold 'your money'.

 

The logical next step is a World Bank issuing a global CBDC that all citizens of the world can use to transact with each other.

Hello inclusiveness, and bye-bye PayPal, ApplePay, GooglePay, etc. 

 

Taken together, this goes a very long way to wiping out the business case for private crypto-currency. No Bitcoin, no Ether, no ICO. Worse still is that the only people who would use Bitcoin, are those who cannot stand the scrutiny of a central bank – the drug dealers, arms merchants, money launderers, dirty money, etc. And that money cannot get out of crypto – unless you or I buy crypto …. and pay in fiat.

 

Clearly a very, very elegant solution – akin to ‘Raid’ for cryptocurrency.

And pretty hard to see how the crypto bubble remains inflated – when this becomes the very real alternative.

 

What are your thoughts?

 

SD

 

 

 

how much to get in on on the ground floor?

[Fat Pitch]

So the central bank will never ever increase the supply? No more bail outs during recessions? Bunch of crap, there's nothing they can do to stop this tide of private sound money.

 

Research courtesy of the Bank of Canada. ‘Central Bank Digital Currency: Motivations and Implications’, Engert and Fung, 2017. https://www.bankofcanada.ca/2017/11/staff-discussion-paper-2017-16/

 

The Benchmark Central Bank Digital Currency (CBDC), Section 3.1, p 8-11 is a Bitcoin killer. It is legal tender backed by a central bank, there is no transaction charge to use it, and no charge for storing cash (security, insurance, etc.). Allow the central bank to track the owners or parties involved in CBDC transactions, and your ‘cash' can even pay you interest – as per the I-CBDC, Section 5.1, p 21-24.

 

Negative interest rates are no longer practical - as all an owner need do is hold CBDC, and rely on the security of the Central Bank server to prevent theft. No more paying the bank for security to hold 'your money'.

 

The logical next step is a World Bank issuing a global CBDC that all citizens of the world can use to transact with each other.

Hello inclusiveness, and bye-bye PayPal, ApplePay, GooglePay, etc. 

 

Taken together, this goes a very long way to wiping out the business case for private crypto-currency. No Bitcoin, no Ether, no ICO. Worse still is that the only people who would use Bitcoin, are those who cannot stand the scrutiny of a central bank – the drug dealers, arms merchants, money launderers, dirty money, etc. And that money cannot get out of crypto – unless you or I buy crypto …. and pay in fiat.

 

Clearly a very, very elegant solution – akin to ‘Raid’ for cryptocurrency.

And pretty hard to see how the crypto bubble remains inflated – when this becomes the very real alternative.

 

What are your thoughts?

 

SD

[scorpioncapital]

"the scrutiny of a central bank – the drug dealers, arms merchants, money launderers, dirty money, etc. And that money cannot get out of crypto – unless you or I buy crypto …. and pay in fiat."

 

In other words the same politicians and the rich - have you seen Panama Papers and Paradise Papers? Even fiat has not stopped anyone. I don't blame them incidentally. Our social systems are so screwy I see more and more chipping away at trust in the system. Bitcoin has a large natural reason for being. I'd like to know if governments can shut it down. Probably there will be some tax haven nations that will benefit by allowing it for their currency or in case Western countries  ban it for legal tender like paying salaries and expenses.

 

 

[SharperDingaan]

The reality is that there is a very large market that Bitcoin serves extremely well, it isn't going away.

However, the presence of the CBDC will severely limit the long term demand for Bitcoin.

 

While it is highly likely that Bitcoin will be used to develop the options/futures/loan markets for crypto-currency, it is also highly likely that it will not be able to hold its market share against competing CBDC counterparts. Given the choice; aren't you far more likely to prefer transacting with a fully convertible coin backed by a central bank, versus taking your chances on a coin exchange to buy a Bitcoin backed by squat? Welcome to the market.

 

Do we really still think that we're going to see Bitcoin at USD 50,000, when these things are present?

 

SD   

[clutch]

Given the choice; aren't you far more likely to prefer transacting with a fully convertible coin backed by a central bank, versus taking your chances on a coin exchange to buy a Bitcoin backed by squat? Welcome to the market.

 

I'm sure people preferred exchanging sacs of grain instead of money at some point in time...

[no_free_lunch]

SD,

 

Is this even a blockchain or just digital currency?

 

I don't see this killing blockchain without it being a public ledger.  One of the advantages of bitcoin is that you can take large chunks of information, form a token and store the hash of the token on the chain.  You then have high probability that that hash really was created when you said it was.  I think this is how t0 is planning to integrate their data into blockchain for instance.  It all works together along with money transfer/payments/etc to add value to bitcoin.  I think the central bank might be missing this but could be mistaken.

 

I think what will kill bitcoin if anything is the forking.  It's power is being this solid reliable source but when people get greedy and start looking at forking as some weird type of dividend you lose the uniqueness of the chain.  This forces the miners to pick chains and as the miner pool on a single chain get to be smaller and smaller, it increases the risk of a bad actor compromising the chain.  It also makes it difficult for these ancillary apps (t0) as they have to guess which chain is the main chain to store their information.  You don't want to be keeping everything on a chain and then have it fade away.

[wachtwoord]

Lol! The whole value proposition of Bitcoin is decentralization and absense of the need to trust. Canadians crack me up (but Russia and Equador are doing the same stupid thing).

 

The Canadians have even tried something similar before with Mintchip (https://www.coindesk.com/canadian-government-end-mintchip-digital-currency-program/ ).

 

Dead on arrival.

[wachtwoord]

 

Given the choice; aren't you far more likely to prefer transacting with a fully convertible coin backed by a central bank, versus taking your chances on a coin exchange to buy a Bitcoin backed by squat? Welcome to the market.

 

You'd be better of buying something (as a store of value) that doesn't require backing cause it's the actual thing such as gold or Bitcoin rather than something non-existing, even if backed by a real thing (which this is not as fiat currency is NOT backed by gold these days).

[SharperDingaan]

SD,

 

Is this even a blockchain or just digital currency?

 

I don't see this killing blockchain without it being a public ledger.  One of the advantages of bitcoin is that you can take large chunks of information, form a token and store the hash of the token on the chain.  You then have high probability that that hash really was created when you said it was.  I think this is how t0 is planning to integrate their data into blockchain for instance.  It all works together along with money transfer/payments/etc to add value to bitcoin.  I think the central bank might be missing this but could be mistaken.

 

I think what will kill bitcoin if anything is the forking.  It's power is being this solid reliable source but when people get greedy and start looking at forking as some weird type of dividend you lose the uniqueness of the chain.  This forces the miners to pick chains and as the miner pool on a single chain get to be smaller and smaller, it increases the risk of a bad actor compromising the chain.  It also makes it difficult for these ancillary apps (t0) as they have to guess which chain is the main chain to store their information.  You don't want to be keeping everything on a chain and then have it fade away.

 

CBDC is just another digital currency, performing the same functions as Bitcoin. Better, faster, and more securely.

Agreed that Bitcoin is simply an Oracle running block chain on a distributed ledger. With CBDC, the CB is simply a similar Oracle running block chain on a data base. The data base permits scaling, faster processing, and comes with the network advantage of every citizen in the nation also having a digital wallet at the CB. Bitcoin just isn't competitive.

 

Bitcoin is also an inflation machine. As the only way a miner gets paid is in new bitcoin - steadily increasing the supply of Bitcoin at a declining rate up to the design limit of 21M coin. Thereafter we are simply to BELIEVE that the 21M design limit will never be raised; the same way we are simply to BELIEVE that the central bank will never increase money supply. Same belief, but who do you trust more?

 

SD

 

[wachtwoord]

SD you forgot about transaction fees. And yes 21M will be the limit. No-one wants to hold a bitcoin fork which abandones that limit.

[no_free_lunch]

The central bank idea does have the advantage of much much much lower electricity cost per transaction.  Bitcoin is so inefficient and there doesn't seem to be a way to have the security without that inefficiency.  The more people mining, the harder it is theory for any one person to corner the chain.  With the central bank idea there is no mining at all so big edge there.

 

However I still don't think this will fly.  I just can't see central governments giving up control of their currency.  I really don't want to drag this into politics but I think our current system with large government deb loads is dependent on low levels of inflation to devalue the debt.  If you can't print I don't know if you can guarantee inflation.

 

I also think people would continue to use bitcoin regardless. As I said there are uses beyond currency and even for currency there is value to being outside of government scrutiny.

[Hielko]

SD you forgot about transaction fees. And yes 21M will be the limit. No-one wants to hold a bitcoin fork which abandones that limit.

Too be honest, I think the hard limit is stupid since it means that the whole cost of running the network is being shouldered by people doing transactions while everybody owning bitcoin takes advantage of the network being secure. The current system where there is a bit of "inflation" because new coins are issued is I think a lot fairer.

[Cevian]

I would have thought the following would be apparent by now but might be worth reiterating.

 

Most people have lost complete confidence in:

 

1. Government and Politicians

2. The Mainstream Media

 

Therein lies the explanation to many of the disruptions we are seeing over the past few years and will keep seeing.

 

A close third creeping up on the "loss of confidence" list are "Big corporations".

[rkbabang]

I would have thought the following would be apparent by now but might be worth reiterating.

 

Most people have lost complete confidence in:

 

1. Government and Politicians

2. The Mainstream Media

 

Therein lies the explanation to many of the disruptions we are seeing over the past few years and will keep seeing.

 

+1

 

This is why the left is having more and more difficult time understanding the world.  What is obvious to everyone else is simply inexplicable to them. Thus they think it must be hatred or racism or ignorance or something.

[SharperDingaan]

Re fees, see p 9 Central bank fees. "The central bank does not charge fees for distributing exchanging or storing CBDC, or for making payments using CBDC. Commercial banks could, however, decide to charge fees for services related to CBDC." Once Bitcoin reaches the 21M coin design limit, miners are paid in cash - at whatever price the market will bare at the time.

 

Re control, see p 9 (2.7 Summary) and p 22-23 (6. Conclusions). The CB actually gets too much control, particular in times of stress. Commercial banks cant charge a fee to keep your money, and must offer > the CB interest rate if they are to retain a customers deposit.

 

We might not like it, but if we trust our central bank enough to use its fiat currency, then we also trust it enough to use its CBDC. Alternatively we could use gold, rice, sea shells, or Bitcoin - but we run the risk that nobody will accept them. In most places it's still really hard to pay for a beer with Bitcoin.

 

SD

 

 

 

[no_free_lunch]

Supply by central bank

•

The central bank supplies as much digital currency as the public is willing to hold.  As a result, supply is demand-determined and perfectly elastic. 

 

So this isn't a block-chain and the supply isn't fixed.  What features does this have that will disrupt bitcoin?

[wachtwoord]

You trust CBs SD? The main people into Bitcoin do not. That's why CBs are not present (and cannot be present) in Bitcoin's design.

[SharperDingaan]

The CB trust issue reflects the cyberpunk movement of the 1990's; anarchy as the solution to corrupt society, resulting in the Nakamoto creation of Bitcoin. The reality of course is that at the day-to-day level - we all have to trust the state authorities where we live; and the CB is just another authority. At the practical level, most would prefer doing business alongside a CB - versus a drug dealer/money launderer. Additionally, not all CB's are equal; we might trust the Bank of Canada, the Central Bank of Russia - not so much.

 

This is a digital currency block chain, running on a database; with the value of the currency always 1 coin = 1 $ fiat, and guaranteed by the CB. Compare Sections 5 and 7 against Bitcoin, to determine the disruptive features. We would suggest the answer also depends on the users purpose; ZERO price volatility is great for transactions, but a nightmare if your Bitcoin is held for trading.

 

SD

 

 

 

 

 

 

[rkbabang]

SD, since you are fine trusting governments with your money:

 

  http://www.businessinsider.com/venezuela-launch-cryptocurrency-called-petro-2017-12

 

 

[wachtwoord]

SD, since you are fine trusting governments with your money:

 

  http://www.businessinsider.com/venezuela-launch-cryptocurrency-called-petro-2017-12

 

LOL. Well Bitcoin cash (scam) and Ethereum (centralized) are also valued in the billions. This is like the dot com bubble: back then everything with a website was bid up, now everything with a blockchain (or even without see Ripple). Buying and holding the few legitimate companies also worked in 1999 (albeit it took a while for the income of these companies to match up to their outlandish valuations).

[John Hjorth]

Thank you for sharing the Staff Discussion Paper in your topic starting post, SharperDingaan,

 

It's a great & interesting read.

[SharperDingaan]

As already mentioned, not all CB's are equal!

Its also a bad idea in the crypto/block chain world to immediately dismiss the concept behind an idea - simply because it was poorly executed first time around. Think of a 'petro' as a digital currency used for global o/g settlement (versus USD), and the business case looks very different. 

 

Sadly, I don't work in such esteemed CB circles (yet!); but know good research when I see it - and how to reference it.

Just a humble lecturer in how to develop and implement block chain solutions for everyday business  ;)

 

SD

[wachtwoord]

'Petro' is not a crypto. Neither is that Canadian trash. Please don't soil the name. It's just fiat.

[SharperDingaan]

Point taken ;)

 

It's a hard reach for anyone who has lived through the experience of a CB debasing its currency (Zimbabwe, Argentina, Lebanon, East-Block, Germany, etc.) to now suddenly trust it. Bitcoin, and its distributed ledger, was designed as the solution - and it works very well. Arguably so well - that the CB's are doing their best to replace it! But .... when nobody accepts the CB's scrip/fiat ($Z, Peso, etc.) in their store, we all switch to USD/Euro/Franks instead (another CB's fiat currency!). Hence the observation, that not all CB's are the same.

 

'Tall poppies get cut down', simply because they are too disruptive.

We would humbly suggest that the lawnmowers are coming.

 

SD