By Christian Keroles
The emergence of Central Bank Digital Currencies (CBDCs) has ignited widespread interest, sparking enthusiasm among central bankers, generating curiosity within financial media, and fueling spirited debates in the Bitcoin community. Among cryptocurrency enthusiasts, opinions on CBDCs vary widely, ranging from viewing them as powerful tools for government surveillance and control to seeing them as desperate attempts by traditional fiat systems to maintain relevance. In this essay, we will explore the assertion that CBDCs are unlikely to attain widespread adoption, while bitcoin is poised to emerge as the dominant digital currency. Three pivotal factors support this argument: Bitcoin’s open and permissionless nature, its first-mover advantage, and its user-centric monetary policy.
OPEN AND PERMISSIONLESS ARCHITECTURE
Bitcoin operates on an open and permissionless framework, allowing anyone to participate in the network and contribute to its development. This openness fosters a vibrant community of developers, miners, and users, propelling innovation at a rapid pace. In stark contrast, CBDCs are closed systems under governmental control. Lacking the open-source nature that fosters community-driven development, CBDCs resemble government intranets, such as those used by entities like the U.S. Department of Veterans Affairs or the UK’s NHS, designed for specific user groups and purposes. The restricted and centralized nature of CBDC intranet hampers their ability to innovate at the speed of an open system like Bitcoin.
FIRST-MOVER ADVANTAGE
Bitcoin not only pioneered the concept of digital currency but has also seen substantial real-world adoption and growth. From a financialization perspective, Bitcoin has achieved significant milestones, including its recent adoption as legal tender in El Salvador. It boasts a thriving organic economy, deep and highly liquid trading markets, and the development of mature derivative markets worldwide. On a technical level, Bitcoin maintains tens of thousands of distributed nodes that uphold the ledger, supported by a globally dispersed network of miners and mining equipment operating across nearly every jurisdiction on Earth. In stark contrast, most CBDC projects remain in their infancy, with many still in the alpha stage or early phases of research and development.
As of September 25 of this year, Christine Lagarde, the Chief of the European Central Bank, indicated that the Digital Euro remains at least two years away from implementation. China, previously regarded as a frontrunner in Central Bank Digital Currency technology, was still in the trial phase, primarily focused on establishing rudimentary use cases with close allies. In comparison, Bitcoin and the broader open cryptocurrency ecosystem have amassed over 14 years of production activity and organic growth. For those who may not have closely followed Bitcoin’s evolution, CBDCs may initially appear reasonable. However, upon closer examination, it becomes evident that Bitcoin’s first-mover advantage provides it with a substantial head start in terms of network effects, adoption, and technological maturity.
Christian Keroles is the Director of Financial Freedom at the Human Rights Foundation.