A 44-page report commissioned by CPA Australia delves into the standing of Central Bank Digital Currency advancement globally, while researching viable blockchain applicants for hosting CBDCs in the next several years.
The report provides up tests of the three transacted cryptocurrencies from Bitcoin (BTC), Ethereum (ETH) and XRP (XRP)( and also investigations their own suitability (or lack thereof) for use with central banks. )
Bitcoin’s decentralized system and deficiency of supervision by banks or authorities makes it usually unsuitable to use in a federal CBDC system, notes that the report. Though Bitcoin remains recognized as a moderate of market all over the world, its volatility and unpredictability has led in a deficiency of trust one of central banks. The report says:
“Despite it not being legal tender, Bitcoin is popular, and it is accepted as a medium of exchange in many places. Bitcoin’s price has been subject to spectacular volatility in recent years and this volatility has resulted in a lack of confidence in Bitcoin as a medium of exchange or as a store of value and raised concerns among central banks as to the viability of cryptocurrencies as CBDCs.”
While Bitcoin continues to puzzle and confound lawmakers in most jurisdictions, the report also notes that its legal status as a currency is undergoing a transformation. The report cites a ruling by the Commercial Court of Nanterre in France in 2020, which declared that “Bitcoin is an intangible asset with an exchange value, equivalent to fiat money at law.”
“This, along with a January 2020 UK High Court decision recognising digital currency as property, and a February 2020 NSW District Court decision that acknowledges digital currency as a store of value, the legitimacy of digital and cryptocurrencies is gaining credence from a legal and economic standpoint,” says that the report.
Ethereum suffers from several of the exact drawbacks as Bitcoin as it comes to hosting CBDCs, based on this report. Despite permitting “programmable money” throughout the usage of smart contracts, Ethereum’s decentralization and inability to be commanded from any state celebrity ensure it is an unlikely candidate for hosting CBDCs. The report says:
“ETH is like Bitcoin, in that it is purely digital, fully decentralised outside any state control. An important distinguishing feature of Ethereum platform compared to the Bitcoin blockchain is that it allows for the operation of smart contracts, and therefore programmable money and payments.”
Running contrary to Ethereum’s perceived inadequacy for use in government systems, the Reserve Bank of Australia used Ethereum-based technology in November 2020, when it sought to develop a proof-of-concept for a tokenized CBDC.
A slightly more optimistic view is offered regarding the use of Ripple and XRP. According to the report, the Ripple Network and the XRP coin are looked on more favourably by banks and governments due to their centralized nature. The report states:
“Ripple and XRP enjoy the trust of many banks as a model for CBDCs because it is highly centralised and is based on a permissioned network where only certain network nodes can validate transactions, as opposed to decentralised and permissionless Bitcoin and Ether.”
The report asserts that the centered character of Ripple’s operations which makes it like central banks, because of the way programmers can restrain the “timing and quantity of supply” of its related tokens. It says: “Ripple also allows the creation of new currencies and Ripple developers can decide the timing and quantity of supply in a similar way to current central bank operations.”
The report also notes Ripple “does not operate on a blockchain network per se,” Assessing the Ripple Protocol consensus algorithm (RPCA), that it states is Ripple’s very own patented technologies.
The report points out the France’s central bank, the Banque de France, has expressed interest in researching Ripple as a potential stage for hosting a Europe-wide CBDC.
In short, the report notes the COVID-19 pandemic has accelerated the electronic transformation, spurring quicker growth of electronic payment methods, blockchain jobs, and also the financial technology industry at large.
involving the growth of Bitcoin, as well as the development of corporate-led fiscal infrastructures such as Facebook’s Libra (currently Diem), central banks have been made to maintain a shut watch on the continuing improvement of blockchain along with cryptocurrency jobs.