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How unlike cash will CBDCs be?

In this post I discuss several differences between physical cash, and what I imagine retail Central Bank Digital Currencies might end up looking like.

The post How unlike cash will CBDCs be? appeared first on Bits on Blocks.

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In this post I discuss several differences between physical cash, and what I imagine retail Central Bank Digital Currencies (CBDCs) might end up looking like. The main differences between CBDCs and cash are accessibility, anonymity, and interest.

Accessibility means “who can use it?”. Pretty much anyone can use cash.

Anonymity describes how much information about the payer and recipient’s identity is needed to make a transaction. Cash doesn’t require the payer or recipient to provide any identity information.

Interest describes how much the number goes up if you leave it sitting in its natural state without lending it to anyone. Physical cash does not have interest.

Accessibility – who can use it?

Here is a version of my favourite flower: the money flower, from the Bank of International Settlements (sometimes described as the central banks’ central bank). I’m a big fan of their research.

Source: https://www.bis.org/publ/qtrpdf/r_qt1709f.pdf

I love how in one chart you can see various types of money, differentiated by accessibility (who can use it), form (physical/digital), issuer (who created it), and transmission (whether payments are account based or peer-to-peer).

But I have a quibble with the “Universally accessible” bubble. How can Cash (physical banknotes issued usually by the central bank) be in the same bucket as bank deposits? (Later I will argue that CBDCs will be closer to bank deposits than cash)

Bank deposits are nowhere near as accessible as physical cash. Just ask any 5 year old if they can open a bank account. Ask any homeless person if they can open a bank account. Ask a North Korean (or whatever other country is bad-actor-of-the-day). Ask someone with a name identical to a terrorist. Ask a foreign tourist. And so on and so on.

Clearly, accessibility lies on a dimension – or even a grid, with “technological capability” as the other axis:

Any form of money that is digital or requires any form of identity makes it less accessible than physical cash. Less financially inclusive than cash.

CBDCs will probably not be as accessible as physical cash. But they can come close, if they can be loaded onto tap-to-pay cards such as Octopus cards (Hong Kong), Oyster cards (London) and so on.

A question you can ask is “Can a charitable 5 year old give some CBDC to a homeless person as easily as they can give some cash?”

Anonymity – how much identity information?

When you pay in cash neither the payer or the recipient needs to know anything about the other. And no spying eyes see or monitor the transaction, nor can they block it.

Central banks issue cash, but they can argue that there’s nothing they can really do to prevent cash’s use in the grey and black economies. Can we imagine that central banks will issue completely anonymous digital money? With digital comes the tools to log, monitor, and censor.

We live in a world with increasing focus on anti-money laundering (AML) and countering the financing of terrorism (CFT). This has come hand in hand with an erosion of personal financial privacy and increased state surveillance of all parts of our personal lives.

Will any central banks have the ability and political will to fight for the individual’s right to financial privacy?

It’s hard to know how central banks think, and how they will act. One proxy for the right to privacy of “self vs state” is internet privacy. Here’s a graphic by bestvpn.org showing countries ranked for personal internet privacy:

Source: https://bestvpn.org/countries-ranked-by-privacy/

The tension between national security / state surveillance vs personal privacy may impact how CBDCs are designed. This is a fascinating and important area, and one where the Americans and Chinese are probably quite aligned with each other, with perhaps the Europeans leaning slightly more towards the rights of the individual. They remember the Stasi.

At any rate, it is hard to imagine that CBDCs will be as anonymous as cash. It would be a brave central bank who offers a digital form of money that leaves as few traces of identity as physical cash.

Interest – will number go up or down?

Cash sitting in your wallet or under your mattress does not have an interest rate. A £10 note does not become £11 (or £9) however long you leave it. (Here it is important not to confuse interest with price inflation and its consequent reduction of purchasing power where your money now buys you less stuff than it did last year)

Today, central banks typically have two levers to pull to affect the economy. One is what they say, and the other is what they do.

What they say is sometimes called “forward guidance” – economic markets react when central bankers make speeches.

What they do is have direct or indirect control of some form of interest rate that they offer or charge to commercial banks. Commercial banks transmit this interest rate to businesses and households.

In the literature I have read on CBDC research and design, it is usually the inclusion of an interest rate that results in economic benefits (GDP going up, etc).

And typically, the benefits come when negative interest rates are possible. Your £10 of CBDC can become £9 without you spending any money. This allows central banks to transmit deep negative interest rates directly to the pockets of households. Deep negative interest rates, or the threat of it, is designed to increase spending, keeping GDP numbers going up. (For this to work, you also have to make it hard for people to quickly switch to zero-interest physical cash).

It is hard to imagine that central banks will resist the temptation to add interest rates (negative as well as positive) to a retail CBDC. This would make CBDCs more like a commercial bank deposit than cash.

Conclusion

So what’s left? How cash-like will CBDCs be? I have argued that CBDCs are unlikely to resemble cash in terms of accessibility, anonymity, and interest. And they are unlikely to be as financially inclusive as cash.

So we should probably think of them more like safer bank accounts than like physical cash. But I’m not sure “Central Bank Accounts” (CBAs) sound as sexy as CBDCs.

Source: https://bitsonblocks.net/2019/12/17/how-unlike-cash-will-cbdcs-be/

Blockchain

OpenSea Crashes Following BossLogic NFT Drop via Ethernity

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The hype around non-fungible tokens (NFTs) continues to escalate as demand for primary sales is only growing higher.

The last manifestation of this was earlier during the BossLogic NFT drop that took place on the OpenSea marketplace, causing it to essentially crash under the high traffic.

OpenSea Crashes as Traffic Surges

OpenSea, touted as the largest NFT marketplace crashed last night under a serious surge in traffic caused by an NFT drop.

The platform took it to Twitter to explain what happened:

Outage notice: the Bosslogic drop caused a 2X surge in traffic at 19:30 UTC, ultimately causing two spikes of failed requests, at 19:50 and 20:40.

The issue was our servers’ ability to reclaim memory. We will have a fix out shortly, but sincerely apologize to all affected!

Naturally, this caused some users to be upset because they’d lost gas fees as a result of the outage. The team responded that they “will not have to pay gas the next time you bid, for the next auction – that cost is only for the first time you ever bid on anything (converting ETH to wrapped ETH).”

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BossLogic’s NFT Drop

BossLogic is a well-known artist with almost half a million followers on Twitter and a lot more across different social media platforms.

His latest NFT drop was through a partnership with Ethernity chain to offer 2501 pieces of art to the very first lucky community members.

The tokens were sold for 0.299 ETH and each one of them represented digital artwork that’s featured in the collection.

This latest NFT drop is the latest to create massive hype around it. As CryptoPotato reported yesterday, the interest surrounding non-fungible tokens have surpassed that of ICOs from back during their peak in early 2018. This has caused many people to believe that they are in a state of a bubble.

Featured image courtesy of Inverse

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Source: https://cryptopotato.com/opensea-crashes-following-bosslogic-nft-drop-via-ethernity/

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Norwegian Oil Mogul Sets Up $58 Million Entity to Buy Bitcoin

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The institutional bitcoin frenzy continues to spread like an epidemic. After several United States mega corporations added the digital currency to their balance sheet, the floodgates have been opened to major institutions across the world. Norwegian holding company Aker ASA said today that it will establish a new unit dedicated to bitcoin investment and the digital asset’s underlying technology.

Miss Out? “No Way”!

Asian smartphone giants, Meitu yesterday joined the league of institutional bitcoin adopters, as reported by CryptoPotato. With the future of modern-day finance hanging in the balance, companies investing reserve cash in bitcoin is widely becoming a norm rather than an exception. The latest to embrace bitcoin is Norwegian holdings, Aker ASA. It made the announcement in a press release this morning.

Aker ASA is going a step beyond investing in the leading digital currency. It will set up a company devoted to investing in bitcoin and blockchain technology. The new company called “Setee AS” will actively participate in the cryptocurrency space by collaborating with other industry players. It will also invest in other companies with healthy prospects in the blockchain and cryptocurrency industry.

The company which majors in offshore fishing, construction, and engineering said it would convert all its liquid assets to bitcoin. The new dedicated bitcoin unit will have a capital of around 500 million Norwegian crowns (approximately $58.6 million).

.. With Great Power Comes Great Responsibility

According to Aker, the operation of the new entity will span beyond bitcoin investment. The unit is expected to leverage the capabilities of its parent organization to pursue innovations in cybersecurity, financial transactions, and emissions-free verification operations. As part of the latter, the company will research and work on alternative ways to verify bitcoin transactions in a more environmentally friendly manner.

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To set the ball rolling, Setee is collaborating with a Canadian global leader in Bitcoin and blockchain technologies, Blockstream. President and CEO of Aker ASA, Øyvind Eriksen, spoke on the launch of Setee and its first partnership.

“With the launch of Seetee, the Aker Group makes another move into software and fintech. We are very excited about the industrial opportunities that will be unlocked by Bitcoin and blockchain technology, and want to contribute forcefully to that effort. These technologies have the potential to reduce frictions in our day to day lives, enhance the security of our digitally driven economies, and unlock new business models for innovation. We look forward to addressing these and other applications together with Blockstream and other partners”

Aker AS is owned by Norwegian billionaire businessman Kjell Inge Rokke. Rokke shared a letter concerning the latest development to the company’s stakeholders. In the letter, he wrote:

First, we will use bit­coin as our trea­sury as­set and join the com­mu­ni­ty. In Bit­coin speak, we will be hodlers. We will be dif­fer­ent, but ad­di­tive.

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Source: https://cryptopotato.com/norwegian-oil-mogul-sets-up-58-million-entity-to-buy-bitcoin/

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ETC Group adds Ethereum ETP on Deutsche Borse

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Exchange-Traded Products [ETPs] are gaining prominence and crypto investment firm ETC Group announced the launch of an Ethereum ETP on Deutsche Borse’s Xetra on 9 March. This ETP will go live with the ZET ticker and will be its second crypto investment product after Bitcoin ETP, as per reports.

The firm launched Bitcoin ETP in June 2020 and its assets under management have surged to $1 billion since. Since ETP’s value depended on the underlying security, this growth was a given for Bitcoin. Now that Ethereum has also joined the bandwagon, the results of its growth will also reflect positively for the investment firm.

Xetra, operated by the Frankfurt stock exchange, noted that more than 90% of trading in German shares goes through the marketplace, along with 30% of trading in exchange-traded funds [ETFs]. As per its website, more than 30 new ETFs and 4 ETCs are tradeable on Xetra since January.

However, ETC Group was not the only one listing ETPs on Deutsche Borse. 21Shares AG also announced the launch of the world’s first centrally cleared Ethereum [ETH] and Bitcoin Cash [BCH] ETPs a few days back.

According to reports, this was done to further push the institutionalization of crypto assets. Subject to approval by the Frankfurt Stock Exchange, the 21Shares Ethereum ETP [21XE] and 21Shares Bitcoin Cash ETP [21XC] will list on Deutsche Boerse on 9 March, with annual management fees of 1.49% and 2.50%, respectively.

The institutional interest has been increasing for Ethereum ever since the market has been rallying. The second-largest crypto and the most popular altcoin, Ethereum has managed to carve a niche for itself with the addition of decentralized finance [DeFi] and dApps.

Source: CoinStats

At the time of writing, ETH was going strong at $1,713, despite the high volatility in the market. It is returning 142% year-to-date to its investors as more people flock into the Ethereum ecosystem.


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Source: https://ambcrypto.com/etc-group-adds-ethereum-etp-on-deutsche-borse

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