The Digital Dollar Will Not Be a Threat to Bitcoin, but Rather a Trojan Horse Pushed by the Fed Itself
This would solve a major problem in the adoption of Bitcoin by the general public.
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This beginning of 2022 has been marked by insistent rumors about the imminence of a clearer regulation regarding Bitcoin and cryptocurrencies by the Joe Biden administration. This is not the first time that such rumors have come to light, and we will see what happens in the coming weeks and months.
At the same time, the Fed released a long-awaited report in mid-January 2022 on the advisability of creating a digital dollar. This report was highly anticipated as China has already surpassed 140 million users of its digital yuan in 2021. The figures are impressive and show the first-mover advantage that the country led by Xi Jinping has taken in the field of CBDCs (Central Bank Digital Currencies).
Many voices are being raised in America to say that it is time for the Fed to step up a gear with the digital dollar.
The Fed is considering a digital dollar but will only act if there is support from the general public and the government
Entitled “Money and Payments: The U.S. Dollar in the Age of Digital Transformation,” the Fed's report measures the benefits and risks of a digital dollar. The first point to remember is that the Fed will only embark on a digital dollar in “the context of broad public and cross-governmental support”.
The Fed first wanted to reassure the banking sector by explaining that even with a digital dollar, the Fed would “likely not be authorized to issue digital wallets or accounts capable of holding a U.S. central bank digital currency, or CBDC, but rather leave such matters to the private sector”.
The report also explains that this would “raise privacy concerns for customers,” while on the other hand, it could “help in the fight against money laundering and terrorist financing”. Still, the Fed wants to strike a balance between benefits and risks.
Besides, the Fed explains that a digital dollar could help limit the risks inherent to the “proliferation of private digital money”. Finally, the Fed explains that a digital dollar could be important for America to maintain its monetary hegemony in a future world where everything will be digital:
“A CBDC could fundamentally change the structure of the U.S. financial system, altering the roles and responsibilities of the private sector and the central bank. Some have suggested that, if these new CBDCs were more attractive than existing forms of the U.S. dollar, global use of the dollar could decrease — and a U.S. CBDC might help preserve the international role of the dollar.”
As you can see, this Fed report is rather neutral, leaving it up to politicians and the general public to position themselves further on the digital dollar hypothesis.
While some think that a digital dollar would be a threat to Bitcoin, I think it would act as a Trojan horse for Bitcoin
I have heard some people say that the digital dollar could be a threat to Bitcoin. While we don't yet know whether or not a digital dollar will be launched in the coming months and years, I can already tell you that such a digital currency issued by the Fed will not be a threat to Bitcoin. I even think that the digital dollar will act as a Trojan horse for Bitcoin.
The funny thing here is that this Trojan horse will be pushed by the Fed itself.
To understand my point, we need to go back to what drives people to buy Bitcoin beyond the financial appeal. For while the lure of money is what drives the majority of participants in this market initially, those who remain then understand something far more important about Bitcoin: its why.
Bitcoin combines three properties never before seen in a human invention. Bitcoin is decentralized, digital, and rare. If you look hard enough, you won't find anything else comparable in human inventions until now.
With Bitcoin, it is the first time you have a currency that is truly yours but not issued by a central bank, and for which you are not beholden to a central bank. Bitcoin is a decentralized currency that operates outside the current monetary and financial system.
If you choose to buy Bitcoin, you are no longer directly dependent on the Fed's monetary policy decisions. No entity can change the supply limit of Bitcoin, which is limited to 21 million units. Moreover, Bitcoin's programmatic monetary policy gives you guarantees over time. Its superiority still eludes a majority of the general public, but that will eventually change. It is only a matter of time.
A digital dollar will ultimately be an extension of the American dollar's shortcomings to the digital world. On top of that, you will have to add a significant privacy risk, as your transactions can be monitored even more easily. CBDCs are moving in the direction of eliminating cash in the future. Even if you have nothing to hide, you probably don't want the Fed to be able to determine a complete profile of your financial behavior.
A profile that could then be used against you in scenarios that remind us very much of the worst futuristic movies about the mass surveillance society.
With a digital dollar, the Fed would be obligated to educate the general public about digital currencies, which would solve a major problem in Bitcoin adoption
As a user, your interest in Bitcoin is twofold: to protect the fruits of your labor from the ravages of monetary inflation, but also to protect your privacy in the digital world. Bitcoin is a pseudonymous network, but there are solutions to increase your level of privacy. For this, the best is to use software wallets like Wasabi or Samourai. These wallets allow you to mix your BTC in a CoinJoin. A CoinJoin is a transaction to yourself where your BTC is mixed with BTC from other parties. The mixing is usually done with 50 to 100 other parties. I give you more details in the following article:
With Bitcoin, you can combine both in the future. Bitcoin will be your last line of defense against the surveillance world that is being created.
However, there is one problem that remains. Many people find the use of Bitcoin too complex. I don't agree, but my background as a computer developer probably puts me on a different level in terms of using new technologies.
If a digital dollar were to be issued by the Fed, a great deal of education would certainly be undertaken by the American authorities. Tens of millions of Americans would then be educated in the use of digital currency. These Americans would then understand the concepts of wallets or Blockchain. Even if they didn't fully understand them, they would eventually use them in their implementation just as they currently use the Internet.
The majority of Internet users don't even know what the TCP/IP layer and the HTTP protocol are, yet the adoption of the Internet worldwide is approaching 65% of the world's population. What people will remember is that digital currency is something that makes their lives easier.
Once this educational work has been done at the urging of the US authorities, some will then start looking for something even more open. Not all of them of course, but some of them. That's a certainty. And that's when they will naturally turn to Bitcoin, which is the natural gateway for all users who are moving into the world of cryptocurrencies.
In this scenario, the Fed would have prepared the work by educating the masses in the use of digital currencies. A real Trojan horse that would then benefit Bitcoin in a second phase. That's why I'm not at all worried about the hypothesis of a digital dollar issued by the Fed. I must even confess that I am only waiting for this because I am convinced that it will ultimately benefit Bitcoin, the digital currency with superior monetary attributes.
Wait and see what the American authorities have in store for us in this area in the months and years to come.
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