Despite the increasing popularity of cryptocurrency, prospective enterprise users continue to question the real-world use cases and scalability of digital assets. They still long for a more stable digital medium of exchange. This is exactly what prompted developers to create stable coins. These cryptocurrencies are pegged to an external reference such as a fiat currency. Others, meanwhile, back the value to other forms of investments such as real estate or gold. There are now several stable coins on the market, yet not one of them can be considered a widely trusted system.
Central Bank Poses Threat to Crypto
What if this exact vision comes to life but crypto developers are not painted in the picture? This is what appears to be happening with central banks trying to digitize Fiat currencies. A notable example is a recent announcement by the Bank of Thailand in which they teamed up with 8 financial institutions to create a digital currency based on the R3’s Corda distributed ledger protocol. While the project is in its early stages, it lays the groundwork for the creation of a digital currency which could prove more familiar and trustworthy to everyday users.
Cryptocurrency enthusiasts and investors have already invested quite heavily in fiat-backed coins. Tether, for example, is one of the most highly traded coins in trading platforms such as Bitcoin Loophole. But those who want to use these coins to purchase goods and services may be more interested in central bank digital currencies. The one being developed by the bank of Thailand has a specific purpose, which is for facilitating interbank transfers among financial institutions within the capital markets of the country. But this shows that a distributed ledger technology can be used to streamline securities settlement and other financial transactions.
If this project shows even a slight glimpse of success, it isn’t hard to imagine that the central bank digital currency will be expanded to a model that can be widely used by the community. Considering that blockchain based solutions have come a long way from proofs of concept to implementation, the first chapters of a digitized fiat currency may be well underway. This new medium of exchange will probably be limited to in-country transactions, but the addition of smart contract tools and the centralization and pay the way for applying the advantages of blockchain assets to digital fiat currencies.
A Concept Far from the Visions of Developers
Since its inception, cryptocurrencies are meant to address the different problems presented by a central authority regulating fiat currencies. But with the central banks of the different countries exploring the idea of a digitized fiat currency, it seems that crypto developers, investors, and enthusiasts should prepare for a future for from what they have envisioned all along.
A central bank digital currency may pose the same threats blockchain technology sets out to address. A single monetary policy implemented by a central bank can impact the centralization and censorship of digital currencies. But perhaps this move will prompt crypto developers to find new solutions that will remove central banks from the equation altogether. Only time will tell whether a digital fiat currency will ultimately triumph over cryptocurrencies in terms of mass adoption and scalability.