We all know the importance of Cental Banks in regulating inflation and maintaining economic stability. However, in the context of technology revolutionizing the global economy, we have been witnessing the sky-high soaring of cryptocurrencies, especially Bitcoin (BTC). A battle seems to be brewing as central banks take aim at cryptos, with CBDCs, a digital token which centralized and legal tenders issued by central banks, as the first arrow in the quiver.
Now that we are asking: Will BTC kill the central bank? To come up a conclusion, let’s dig down on both pros and cons of BTC, and how this cryptocurrency impacts central banks.
This year has been an impressive one for showing how much value the Bitcoin networks can settle. Having such success, BTC has many advantages over financial institutions.
Users can fully control their money
Bitcoin gives you autonomy over your money, you can access your funds at any time. In contrast, conventional currencies have multiple risks attached and you are always in a passive position with your holdings. When banking systems failed, you will also lose control of your money.
Keeping your info private
For trading through banks, you will need to provide your personal details such as a home address, name, and date of birth, among other things. On the other hand, Bitcoin doesn’t require divulging personal information, which means users can send and receive coins anonymously from any device with a connection, providing a certain level of convenience as long as you have an internet connection.
Secured and low fee transactions
When compared with financial institutions, transfer fees are much lower for BTC. This crypto using a peer-to-peer payment system allows users to transfer funds from anywhere in the world. Purchases don’t require third-party systems like banks, meaning you’ll cut out the middle man and potentially save money on fees.
Moreover, the payment system of BTC also provides secure transactions. When the blockchain detects malicious activity, it splits and continues to process transactions on the legitimate chain, preventing hackers from stealing your money.
The only negative side of this system is that you can only send a fixed minimum amount.
Even when providing multiple advantages over banks, BTC does have multiple weak sides.
Transactions are irreversible
There is no third-party institution that can support you when you have problems with your transaction. Once your money is transferred, you can’t cancel it. So, if you send BTC to the wrong address, it’s lost forever.
Slow transfer speed
When compared to other coins today, BTC payment speed is comparatively slow. This is a significant downside, especially when there are far better options currently with faster transactions, such as altcoins.
Facing a lot of regulators in many countries
Adoption is key for the success of Bitcoin, but financial institutes are actively trying to halt the fast growth of this cryptocurrency. In recent years, bitcoin has been embroiled in multiple regulatory battles and have been scrutinized heavily in many countries, particularly for their role in facilitating criminal activities, such as money laundering. Moreover, with the advent of CBDC, a virtual currency backed by a central bank will be a big threat to the future of BTC.
How does bitcoin impact central banks?
BTC has the potential to revolutionize, or at least to neutralize the major problems within the current financial system when central banks typically make policies that favor businesses. However, the decentralized financial system of BTC gives a solution to limit the hegemony of the legacy banking system, people will have their power back to control their money, letting them decide the prices and overall direction of crypto.
However, a currency’s success isn’t based solely on whether or not you can use it to pay rent or buy a snow shovel at Home Depot. What Bitcoin can’t do is wield the godlike power of the central banks that control the world’s fiat currencies. Bank can increase or decrease the supply of currency circulating in the economy. More fiat money circulating means consumers are spending more cash and the economy grows as a result.
The ever-growing number of mainstream businesses that accept digital currency is undeniable. While cryptocurrency has made clear that it’s no passing fad, with all of its downsides, no one knows for sure whether it will ever truly compete with traditional currency.
But that might not be a big matter. Many experts believe that cryptocurrency’s real value lies in its potential as an asset more than in its acceptance as a medium of exchange.