CBDCs, Bitcoin, Other Cryptocurrencies, and Fiat May be Able to Co-Exist Given Current State of Development: Report

Sovereign governments could potentially be the next group to adopt digital assets, according to a report from crypto-assets firm Kraken.

Kraken writes in an update that central bank digital currencies (CBDCs) might become “the latest, and perhaps most substantial tool, used to expand their monetary policies.”

Kraken also mentions that many governments have “signaled their intent to explore and use” State-backed virtual currencies. Christine Lagarde, President of the European Central Bank (ECB), has noted that an ECB digital currency may launch within the next 4 years, the Kraken team noted.

They also mentioned:

“In the wake of the COVID-19 shutdowns, many governments provided financial relief to their citizens. The funds have largely helped people who lost their jobs, but in countries like the U.S., eight months have passed and some people have yet to receive a check. If successfully implemented, CBDCs would enable governments to pivot toward a cashless society as well as provide people and businesses in need of aid direct access to stimulus funds.”

Although it appears as if the launch of these so-called CBDCs is a natural progression toward the digitization of money, there’s “much more beneath the surface,” Kraken Intelligence claims while adding that their research analysts have looked closely at why governments are “considering them, their faults and what this all means for cryptocurrencies.”

As explained by Kraken, CBDCs might look somewhat similar in nature to decentralized cryptos such as Bitcoin (BTC). But their “intent, spirit, and use” are quite different. Kraken researchers pointed out that Bitcoin, for instance, was founded on “individual sovereignty, decentralization and inclusivity.” Meanwhile, CBDC’s are “centralized, public and available only within the boundaries set by the government.”

Kraken has released a report outlining the structure of CBDCs, the “possible use cases, risks and benefits, current developments by country and implications of a successfully launched CBDC.” Kraken has also looked at how these State-backed currencies compare to cryptocurrencies and why they think CBDCs and crypto-assets can “coexist.” Although they might make payments significantly more efficient, the “tradeoff may be consumer financial privacy – unless citizens demand otherwise,” Kraken claims.

Kraken’s report states that the proposed designs and concepts of CBDCS leads them “to conclude that countries have yet to decide on the limits of a CBDC that is in line with current financial structures while ensuring minimal disruption in its existing financial markets.”

Kraken adds:

“Though it’s early to speak to the effectiveness of CBDCs, or even identify the specific intentions for CBDCs of each issuing central bank, we do not believe they will replace other cryptocurrencies or even fiat currencies. At the end of the day, each serves their own purpose.”

You can check out the full report here.

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