CBDCs: The Disease Cannot Be the Cure
There's simply nothing that a central bank can do within the very rules that they've established that can solve the systemic structural violence they perpetuate.
Since the vast majority of all fiat currency is currently digital, I see no evidence that the CBDCs will be different in any meaningful way. We can expect the deployment of CBDCs to still have the central flaws that our current legacy financial system has. While I'm sure any of the banking partners that deal directly with the central banks will be more than happy for them to deploy a new way to control the inflation and distribution policy of their respective regions, this is ultimately a meaningless gesture that ignores the fact that non-national, permissionless, borderless digital currency exists. For the rest of us, this meaningless gesture isn't able to fully distract us from the fact that non-national permissionless, borderless digital money exists.
We have no evidence that central banks will move to solve the problems that matter most to us as individuals or as a community. Access to the capital flows will still be restricted to the very small insular group that controls the inflation and distribution policy of our economy. This, in turn, allows them to steer our entire civilization by stealing the productivity of every man, woman and child born and yet unborn, that uses their version of money.
So unless central banks decide to start deploying something that could compete with borderless, frictionless, permissionless, and deflationary cryptocurrencies managed by distributed autonomous organizations, completely removed from the controls or machinations of any human, corporation, organization, or regulatory body, I would ask: why are we even bothering to talk about them? And, just as importantly, I would also assert that we should become very suspicious of any individuals or organizations that promote them.
The whole point of the crypto revolution is to no longer need banks. Any attempt to steer us away from that fact should be met with vitriol and scorn by any crypto purist. Anyone caught advocating for CBDCs should be looked at skeptically as either a government toady or a useful idiot. Unless central banks decide to suddenly throw out all of their know-your-consumer (KYC) and anti-money-laundering laws while simultaneously deciding to give people back their self-sovereignty, individual privacy, and basic human decency, then there's very little to discuss here besides surface level questions.
The whole point of the crypto revolution is to no longer need banks.
Any attempt to steer us away from that fact should be met with vitriol and scorn by any crypto purist.
One of the central theses of Anatha is that money is now a product, and the marketplace emerging around that product will be the most important, most competitive marketplace on the planet. So, while I welcome any entries into this marketplace, including those by central banks, they have a long way to convince anyone who has been paying attention that we should care.
Let's call CBDCs what they are: a reaction to the fact that non-national digital currencies like Bitcoin do exist and threaten the hegemonic control of Central Banking and the banking industry writ large. We are coming to drink their f*cking milkshake, and there is nothing they can do about it - except perhaps slow the process long enough for them to get into a better position to survive the coming wave.
One of the main things that the early crypto adopters believe in is the right to self sovereignty, yet those who are promoting CBDCs are actually trying to market to a group of “mainstream” adopters that have not yet materialized. After all, the CBDC is unlikely to create a form of currency that will be forcibly adopted by all merchants overnight. In this way, by creating its own token, governments will still have to face the challenges of marketing to those who already use cryptocurrency and playing nice with the likes of cryptocurrency exchanges and wallets.
As governments start to play by these rules, they will realize that a large majority of the population do not care whether they are using CBDCs or BTC to pay for their meal. The problem is understanding how to obtain said cryptocurrency and keep it without losing one’s private keys, for example. If they lose their private keys, how can they retrieve them? There is no easy answer to many of these questions and the only way to create a smooth user experience may be by initially onboarding people through custodial exchanges that have similar username and password interfaces that regular social media applications do. But this begs the question: if the government or corporation owns your private keys, do you really own your Bitcoin or CBDC?
The fact that CBDCs will need to either be issued on a public blockchain such as Ethereum, or on an alternative chain, also proves many conflicts of interest. After all, many Proof of Work and Proof of Stake consensus algorithms have security flaws, and a bug in any smart contract can be easily hacked. Therefore, for the government to condone the use of any particular Layer One solution would also come with the risks associated with that choice.
In contrast, for a government to issue its own Layer One blockchain, forked from another public blockchain, could also come with a variety of issues relating to centralization and governance. These issues could pose a host of problems relating to conflict of interest. If a large private enterprise were to help run a node for the government blockchain, would the government be beholden to a private enterprise in a way that would prevent the government from functioning in a fair and neutral manner?
One thing is for sure, with governments there are no neutral parties. President Trump’s recent messaging around Coronavirus focuses on faster reopenings in part because he wishes to be re-elected for a second term. All over town, government has always been a matter of partisan interests and whether a CBDC could exist across party lines remains something that is easier said than done.
The way that we operate is very much outside of the bounds of maximizing GDP or seeing every enterprise as a profit maximization opportunity. Although the government may see themselves as the most trusted party, never before has governmental and police power been called into question than with the current climate of COVID-19 and BLM protests.
The fact that the government is putting trillions of dollars into the economy and even buying corporate bonds and ETFs increasingly goes to show that the government cannot be trusted to exercise restraint. Ushering in a new era of inflation also seems to be a race to the bottom for target interest rates as other national governments see who can depreciate their currency faster.
There needs to be a cryptocurrency that has a permissionless, peer-to-peer nature that can be expanded across borders. After all, if the government was the cause for spiralling inflation, will it also create its own solution by creating a CBDC? What kind of inefficiencies does a CBDC seek to alleviate that the traditional US dollar cannot quell?
The fact that the U.S. is so strict on AML and KYC will create the need for whitelisted and blacklisted addresses. However, the fact that CBDCs will only be sent to whitelisted addresses will greatly decrease the power of network effects and network growth. KYC rejections may be time-delayed and manual approvals arbitrary, making accessing whitelist status an inefficient and even unfair process.
One month of waiting for KYC to be resolved, in an arbitrary turn of events, could separate those who have government sanctioned wallets from those who do not, in a “haves and have nots” type of environment. One thing is for sure, this need for KYC would eliminate any type of exponential adoption or growth that the CBDC might be able to initially achieve and arbitrarily dictate the process of who can or cannot receive CBDC tokens, corrupting the process. The whitelisted and blacklisted wallets would have to be updated in real time depending on the various updates of OFAC lists, for example. Because of this, the database that contains indexing of all of these whitelisted and blacklisted people’s wallets and KYC information would have to either be stored in an IPFS-like environment or, if stored in a central database, would leave a treasure trove for hackers attempting to find more data on users who have the equivalent of a publicly viewable bank account through their whitelisted wallets.
In a sense, the fundamental choice to go toward a more centralized ideal creates similar pitfalls. As the probability of human error continues to increase, the more KYC and AML related actions are taken, the more bribes and special exceptions will likely be made. Therefore, those with enough privileges may pay to skip the line, or those who already have whitelisted KYC accounts may try to benefit by charging a fee to those who are blacklisted in exchange for acting as a proxy account for them.
The reality is that, no matter how you think about it, the government will be creating a new hierarchy of haves and have nots around those who can and cannot possess the CBDC. In doing so, the government will continue to increase barriers to equality where gatekeepers may arbitrarily judge who may or may not be
The two common threads that remain constant throughout all these discussions are faulty user experience and conflicts of interest. As users realize that the blockchain might actually create an easily trackable and immutable log of all their transactions using CBDC, once the veil of anonymity has been lifted, will they feel motivated to adopt such a cryptocurrency? Why not go back to just using a debit card or credit card without the same level of potential government scrutiny?
In the end, the government will probably have little-to-no say in the increased adoption of cryptocurrencies such as CBDC. Governments will need the cooperation of large financial services and tech companies and, by creating these alliances, the government will be beholden to private enterprise, creating another conflict of interest.
That is why the government’s CBDC efforts may remain futile. We at Anatha seek to differentiate our offerings by attracting people through humane core values and equal participation in the benefits of a growing ecosystem. In an era of choice, those who wish to disrupt the status quo will understand that the CBDC presents the same paradigms related to government control but in a slightly different packaging.
At Anatha, our guiding principles include being generous, creating systems that are regenerative, returning real spendable value to the community, providing equal access, and making the economy accessible to everyone everywhere. We embrace systems thinking, seeing the big picture and building new models and new paradigms focused on helping people. We seek to stay decentralized, embrace and expand the trustless, permissionless, peer-to-peer information economy.
If you want to participate in a more humane marketplace, dedicated to equality and universal basic income, you can take the first step by joining the Anatha ecosystem. Sign up for our waitlist below and be the first to know when we launch.
EDWARD DELEON HICKMAN
CEO & Founder