Why Countries Should Adopt Bitcoin Instead of Their Own Central Bank Digital Currency

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A man buys from a store that accepts bitcoins in El zonte, 56 km southeast of San Salvador, in June… [+] 09, 2021. – Bitcoin will become legal tender in El Salvador, the country’s president has said, making it the first nation to adopt a cryptocurrency for everyday use. Lawmakers in the Central American nation’s Congress on Tuesday night passed a bill that will eventually allow the famously volatile digital currency to be used for many aspects of daily life, from real estate purchases to tax contributions. (Photo by Sthanly ESTRADA/AFP) (Photo by STHANLY ESTRADA/AFP via Getty Images)

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As countries around the world race to think about how to approach the digital transformation of the global economy, one common thread is to look at the payment system. While most payments in the modern financial system are digital (for example, how a central bank calculates the amount of reserves available to its member banks), cash is still a medium that many people choose to make. However, this percentage is declining and currently accounts for around 18% of global transactions.

Cash makes payments very difficult for a centralized entity to track and allows for a degree of decentralization across technological barriers that a government cannot hope to consistently manage.

This allows for a relatively anonymous form of transaction that preserves the privacy of citizens. It still maintains a check and balance: i.e. it is quite difficult to move large balls of physical money (which is why criminals of all kinds still use bank reserves such as relations with conventional banks to move part of their funds). Yet many countries are striving to move away from cash norms and towards more and more electronic payments and digital rails throughout their economy.

This central bank digital currency tracker demonstrates this trend. A number of countries have started exploring their own central bank digital currency. However, most, if not all, central bank digital currency initiatives at the end of 2022 are at best in the pilot stage. None were fully launched at scale and became the default payment option for a large-scale nation-state.

Even the e-CNY or digital yuan that the People’s Republic of China launched is still in its infancy in some cities.

Even as China seeks to set e-payment standards for the rest of the world, its own efforts are yet to be fully realized, although the consolidation that comes from the pursuit of CEOs such as Jack Ma who control national payment rails and China’s totalitarian structure may allow it to act quickly in this regard.

Yet nation states have many reasons not to follow the same path as the People’s Republic of China and instead adopt an open-source payment standard that negotiates peer-to-peer rather than being imposed from above. down.

1- BitcoinBTC brings talent from all over the world

Instead of struggling with national talent pools, bitcoin brings in very sharp thinkers from around the world in everything from economics to technology to any country that adopts bitcoin as a standard. This was the case in El Salvador, as people with different entrepreneurial and technical backgrounds helped the country think about embracing bond issuance, the types of digital infrastructure needed to run an economy backed by the bitcoin.

It has also helped put El Salvador on the map for tourism and digital nomads thinking about their next destination. Bitcoin allows a country to benefit from the consolidated open-source work of thousands of individuals, and even millions outside their borders, who have pondered difficult digital payment/value issues over the past decade.

2- Proven security and consistency

Bitcoin is secured by computing power around the world and has consistently hit blocks since its inception. While individual wallets and exchanges may have issues, the system as a whole hasn’t failed like a predictable, ticking clock, it’s pushing transactions around the world at a predictable heartbeat.

Much thought has gone into how to make digital transactions secure, with a bitcoin infrastructure based on physical hardware keys, strong passwords, and seed phrases unmatched in any conventional financial system. There is also a game-theoretic aspect to bitcoin security that no e-money has come close to, and that is the ability to secure billions of dollars worth of transactions every day, which is proven worldwide. for over a decade.

3- Modernize without being indebted

Bitcoin brings a full payments stack without needing implementation assistance from a bloc of nation states, allowing a country to become truly independent from one of the world’s polar powers. Lightning enables private, low-transaction, instant payments between different stores and individuals, enabling digital payment rails accepted overseas, technology that enables low-cost instant payments, and a stack of tools for businesses looking to accept digital payments.

Bitcoin also allows countries to choose a more independent and non-aligned foreign policy after all, countries that send foreign or military aid to others often have ulterior motives and since they are centralized nation states with power to long-standing, they can often use their influence to use and abuse lesser countries, a long-standing trend that has lasted for centuries. Bitcoin can enable economic benefits while navigating the world by dividing into different hostile camps or poles.

This does not mean that the countries that have adopted bitcoin have separated themselves entirely from the polar conflict. El Salvador, for example, is in the throes of a dollarized economy under attack from the US-led global financial order, while gaining support from China to build infrastructure within its borders. .

However, as more countries consider how to transition from a cash-filled society to a hybrid economy with digital payment rails, bitcoin offers a credible non-alignment option that does not bind states States nor the People’s Republic of China. . El Salvador was placed in the position of having to adapt the US dollar in order to integrate more deeply into the global trading system and for the potential benefit of economic gain. Future nations that must balance digital payment rails and economic demand should be wary of support from polar powers that easily betray those seen as allies or enemies.

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