The establishment of Central Bank Digital Currency (CBDCs) may likely be the new trend in 2021. Governments who support the idea purport that CBDCs will serve as a tool to stop corruption and money laundering.
With such digital currencies being controlled by the governments, it will be easier to identify the movement of monetary transactions. Also, CBDCs will enable regulators to trace the perpetrators of any illicit activities.
One of the reasons for the increasing interest in CBDCs is the recent surge in the crypto industry king, Bitcoin’s, value. Even until now, many countries and financial regulators still see cryptocurrencies like Bitcoin as facilitators of illegal activities. As the crypto market booms, CBDCs could be used as a tool to curb the crypto industry’s excesses.
Another thing that fueled the interest in creating CBDCs was the novel coronavirus that necessitated cashless transactions.
During the pandemic, many countries realized that contactless payment helped in reducing the spread of the virus. As a result, there was an extensive adoption and investment in cryptocurrencies. Many people who were locked down started investing in crypto.
As the cashless trend continued, policy-makers decided to cash in by launching CBDCs. Even though they argue that these digital currencies will prepare them for extreme events like the pandemic, there’re more reasons for it.
Increasing concerns over the establishment of CBDCs
Governments who support the establishment of CBDCs aim to use them to control monetary transactions. Given the difficulties which regulators face in curbing illegal activities involving physical cash, it seems that CBDCs have become the only option for them to use.
While they may not be able to trace physical cash, they can monitor financial transactions through CBDCs. Also, these digital currencies will enable governments to have more control over users.
But people have other concerns concerning the launch of CBDCs. Many people believe that the Government will increase the rate of financial discrimination through CBDCs. They can use financial processors to exact punishments and bans on people who don’t keep their rules.
That is what people like Andrew Torba, the founder of Gab.com, faced when Visa blacklisted Gab. Even though the Government may not have been directly involved, such situations are likely to be the new normal due to CBDCs.
Another concern is that CBDCs will take anonymity and freedom away from financial transactions. The government may impose stricter KYC requirements for making transfers, which may expose users to all sorts of scrutiny.
Also, there’s a possibility that private tech companies like Apple or Google may come in to facilitate payments, just like the suggestion of the Bank of International Settlements. With that, there will be an electronic transaction history that hackers can quickly attack too.
Still, on the risks of CBDCs, financial experts believe that the central bank digital currencies may prove detrimental to private banks’ existence. According to the Deputy Governor of the Bank of England, Jon Cunliffe, traditional banks may become irrelevant as many people will shift their interest to digital currencies.
However, the people who will suffer more from the launch of CBDCs are users who’ll lose their privacy following possible KYC requirements. The only solution for them will be to seek out other digital alternatives like privacy-oriented coins in such a situation.
Will CBDCs fuel privacy coins’ adoption?
The launching of Central Bank Digital Currencies will likely fuel the adoption of privacy-focused digital currencies. Initially, people argued that CBDCs would increase Bitcoin adoption, and while that is true, it has also increased the government agencies’ distrust of the blockchain.
Therefore, privacy coins can be the best digital alternative for users who wants to remain anonymous in their financial transactions. The lack of financial regulators’ support is the only substantial hurdle digital privacy-focused coins’ adoption is facing today.
Many nations have banned the use of privacy coins, and many may soon suppress them entirely. With countries like Japan believing that privacy coins are the tools for money laundering and banning them, it’ll be hard to increase adoption.
While countries like the US haven’t banned these coins outrightly, they haven’t shown any support either. Instead, they’re planning to adopt a technology that’ll establish traces on Monero transactions.
Other countries like Russia and South Korea are doing all they can to stop adopting privacy coins. For instance, Russia’s Rosfinmonitoring is planning to trace crypto transactions to curb illicit activities. Also, South Korea recently decided to mandate service providers to delist privacy coins.
However, it seems all these bans and restrictions can only prevent mainstream access but will not eliminate privacy coins. The reason is that many privacy coins’ uses make them essential and necessary in the crypto space.
Privacy coins’ use cases
The general perception is that privacy coins like Monero only fuels money laundering and other illicit activities. But the truth remains that there’re other benefits of privacy-focused digital currencies that the crypto community can utilize.
Privacy coins ensure personal security
Privacy Altcoins protects crypto investors who want to hide their wealth from hackers. Initially, cybercriminals were easy to target wealthy crypto holders by tracking their transactions on Ethereum, Bitcoin, and other public ledgers. But with Monero, Zcash, PIVX, etc., investors can rest easy.
They protect businesses using crypto
With privacy coins, many businesses can keep their transactions private. Accepting payments in crypto from a public ledger exposed these businesses unnecessarily to even their competitors. Everyone could access their transactions and make decisions and demands as they please. But with privacy coins, customers and competitors won’t have such an edge over them.
These coins protect users’ financial data
One of the crucial assets that Government regulators and Corporations target is financial data. The Government uses such data to know many things about individuals and sometimes even use it to check their activities.
Corporations, on the other hand, target peoples’ data to gauge their financial behavior. All these intentions lead to exposing individuals to exploits and harassment. But with privacy coins, individuals can hide their financial transaction trails from third-parties.
Privacy altcoins protect users’ freedom
Everyone has the right to disburse their funds the way they perceive to be right. Due to regulators’ suspicions around cryptocurrency transactions, it has always been difficult for users to support countercultural groups or social activities without raising red flags.
The government could trace any transfer made to groups that they don’t support. However, privacy coins enable users to complete such transfers without worrying about the law. With these coins, you can support any group you want without facing the wrath of the law.
Privacy coins eliminate tainted coins’ issues
If any coin is blacklisted for illegal activities, it automatically becomes useless to everyone who has it in their wallets. When this happens, the holders of such coins will find it challenging to use them anywhere. But when it comes to privacy coins, it’s hard to find yourself holding such worthless coins in your wallet.
Is there any future for privacy-focused digital currencies?
It seems that privacy coins are here to stay.
Apart from the increasing applications of these digital coins, their transactions’ decentralized nature will solidify their position in the crypto space.
Rob Gleasure, a Copenhagen Business School researcher said,
“If decentralized privacy-preserving cryptocurrencies become popular in the future, to the point they can be routinely exchanged without users having to convert to other currencies and systems, there is no obvious way for regulators to impose post-hoc regulation”
Gleasure added,
“What the regulators do not realize is those who control the code will control the rules, and so far, they have not accepted this and are in denial.”
This statement implies that with time, the governments may not have any control over privacy coins transactions once they could be exchanged without depending on centralized systems and other currencies.
Another indication of a possible future for privacy coins is that even some CBDCs are planning to add some privacy features to their projects. Also, Litecoin is making plans to add some privacy features during its Mimblewimble upgrade.
So, even though many of the top exchanges are yet to list privacy coins, there’s still hope. Even amidst the restrictions and bans, privacy coins such as Monero keeps rising in value.
Conclusion
The future may seem uncertain now, given the lack of support for privacy coins, but it won’t last for too long. Many experts in the crypto space believe that the launch of CBDCs will likely facilitate the adoption of privacy altcoins.
People are getting more and more privacy conscious, and it won’t be surprising to see them go extra miles for getting hands on private digital assets.
Once the people discovered the stringent requirements of transacting with CBDCs due to their centralized nature, they’ll lean towards privacy coins as their digital currency option to ensure privacy. At that point, the demand for these coins would increase, and the governments will more likely start supporting them in bulk.
