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Will the marriage between fiat currency and cryptocurrency survive?

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Will the marriage between fiat currency and cryptocurrency survive?

CryptoCentral February 13, 2018
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The idea of a central bank-backed cryptocurrency has raised many doubts and now it is to be seen, will the marriage between cryptocurrency and fiat be a successful one? According to experts, it will result in nothing but a futile hybrid. 


In brief:

The idea of a central bank-backed cryptocurrency has raised many doubts and now it is to be seen, will the marriage between cryptocurrency and fiat be a successful one? According to experts, it will result in nothing but a futile hybrid.

The research wing of the Reserve Bank of India, Institute for Development & Research in Banking Technology (IDRBT) released a report in 2017, which stated the time is ripe for blockchain technology adoption in India. According to that report, this was an “appropriate time for initiating suitable efforts towards digitizing the Indian rupee through blockchain technology.”

Now, reports have revealed that the central bank is considering a proposal to introduce its own cryptocurrency based on a blockchain, like bitcoin. They might name this central bank-backed cryptocurrency or a crypto-rupee after the Indian goddess of wealth ‘Lakshmi’. However, the report has raised some serious concerns.

The world’s first cryptocurrency, Bitcoin came in the year 2009, at the time the global financial crisis when public’s confidence in the government was shaken and bitcoin was considered as a possible replacement for conventional currencies. Bitcoin became popular for the fact that it is anonymous and decentralized. Thus, what makes it better than fiat currency is its qualities like anonymity, safety, decentralized setup, and disinflationary nature as it takes away the power of governments to print unlimited money.

The benefits and growing popularity of bitcoin and blockchain have caught the attention of central banks. As such, banks are coming up with their version of crypto, like the US Fed came up with the idea of a Fedcoin.

But wait, the principle behind any cryptocurrency is that it is public and free from the control of the government or central bank. Then what will be a central bank-backed cryptocurrency and how will it differ from other cryptocurrencies? Well, it will be a state-controlled cryptocurrency on a private, permissioned ledger based on proof of concept, unlike Bitcoin or other cryptos which are public and distributed ledger. In this case, a token will be issued on a closed private ledger, bound by smart contracts between trusted third parties like the central bank or any other banks by giving them permission to access and make entries into the ledger.

The bitcoin blockchain ledger is decentralized, distributed, and public. It gives anonymity to users while keeping all the transactions and money movement transparent and open to the public eye. The idea of central bank-backed cryptocurrency has raised many doubts and now it is to see will a marriage between cryptography and fiat currencies be a successful one?

The idea so far has received mixed reactions, with the majority of experts considering it an ineffective hybrid. It will have the disadvantages of traditional currencies and none of the advantages of cryptocurrencies. This hybrid will have many drawbacks as it will be a database without the advantages of a database and will not be secure.

If you have a centralized control over it, it becomes corruptible, mutable and insecure. Another downside would be little incentive for miners to provide hashing power as proof of work, the method used for mining cryptocurrencies, is an extensively power-consuming process. As a result, mining operation will be left entirely in the hands of the state or trusted third parties. Further, a private ledger will lack any transparency and anonymity. Consequently, the state can exercise greater surveillance on the users and the nature of their transactions.

So a question arises, will central bank’s idea of removing the elements, which make cryptocurrencies robust and secure, turn out to be feasible? Well, mixing a system that is controlled, centralized and closed with a system whose basic idea is to be open, anonymous and decentralized will result in nothing but a futile hybrid.


Disclaimer:  This is not an investment advice. It is of paramount importance that everyone should do his or her own due diligence before investing in any product, platform, tokens etc. Cryptocentral.io does not endorse any content or product published on this page. Our aim is to simply provide all the readers with the latest information in the field of cryptocurrency / blockchain industry that might be of interest to our readers.

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