What Are Central Bank Digital Currencies (CBDCs)?
Central Bank Digital Currencies.
The Central Bank Digital Currencies topic is something that everyone needs to pay attention to.
Because this is what most of the global governments intend to change YOUR money into.
What Is The Actual CBDC Meaning?
CBDC means Central Bank Digital Currency.
Central banks are institutions that are responsible for the stability and soundness of the currency in circulation. They have a responsibility to maintain the value of the currency at a fixed rate. They also have a duty to protect the public against financial and commercial risks.
Central bank digital currencies are digital tokens, similar to cryptocurrency, issued by a central bank. They are pegged (linked) to the value of that country’s fiat currency.
Many countries are developing CBDCs, and some have even started using them. Because so many countries are researching ways to transition to digital currencies, it’s important to understand what they are and what they mean for society.
What is a CBDC (Central Bank Digital Currency)?
CBDCs are the digital version of fiat money. A CBDC works exactly the same as the normal currency of a country. They can be used for transactions like paying for goods and services, or they can be used as a store of value in a bank account.
Physical currency is still widely exchanged and accepted, however, some developed countries have experienced a significant decrease in its use, and that trend accelerated during the COVID 19 pandemic. The introduction and evolution of cryptocurrency and blockchain technology have created further interest in cashless societies and digital currencies.
The History Of Central Bank Digital Currencies (CBDCs).
The use of electronic and digital money by Central banks is not new, but the history of it is quite sketchy (meaning it’s difficult to get all of the facts).
In this module, we will try and put all of the parts together.
Although it’s a very complex topic, do remember that Central Bank Digital Currencies are only the latest implementation of a ‘medium of exchange’ or ‘currency’.
Believe it or not, this story goes all the way back to cowrie shells and yak dung!
But we don’t need to go that far back in this module.
It appears that the sketchy history occurs because no one has really publicized or at least made popular, what has actually been happening behind the scenes of the financial industry over the past 150 years.
When you think about it, most of the history you’ve learned in school is of no value to you today. And we are constantly finding out that what we’ve been taught in school about history, is not true but has been fabricated.
For example, Christopher Columbus was not the person’s name and he did not ‘discover America’.
We all know a little bit of history and are often proud of the fact that we can recall dates, names and places from 100s of years ago.
However, ask a few people the following questions and most of them will not know the answer:
- Where does money come from?
- What’s the difference between money and cash?
- What is an EFT?
The answer to each of those questions actually contributes to your standard of living everyday!
The previous few paragraphs have been written to show you, that some things such as money and finance are important subjects that we should be taught as children.
Have you ever wondered why we are not?
This bible passage explains it well.
Electronic And Digital Money In Recent History.
It’s only in the last 50 years that we’ve seen a massive growth in the use of ‘electronic’ and ‘digital’ money.
The technological advancements seem to have been ‘hidden in plain sight’ , meaning the changes have taken place, right in front of our eyes, without us giving them much, if any attention.
The government hasn’t been promoting the information to the public.
Private companies have, but we the people have not used the opportunity to find out more about these subjects.
In this module we are going to start with payment methods that are currently being used, so you can fully understand and appreciate the older payment methods that we will discuss afterwards. We will then bring you up to date with the newest form of currency, Central Bank Digital Currencies.
Let’s define ‘digital money’.
In the most simplistic way, digital money can be defined as:
“Digital Money is a non-physical, widely accepted currency that can be sent and or spent without touching it”.
Now if you think about that definition, (depending on where you live) you will realize that a lot of the money that you spend, you don’t actually physically touch it.
Your mortgage or rent is often paid directly from your bank account straight to the company, organization or person you owe it to. Most people now (at least in most developed countries) don’t have to go and withdraw the physical cash and then pay the mortgage or the rent.
Electricity, gas and water bills.
Exactly the same again, the money is paid straight from your account directly to the electricity, gas or water company.
No physical cash.
When you go food shopping, a lot of the time you will touch or swipe your card or phone, on a card reader, to make your payments.
No physical cash.
Let’s consider when you go clothes shopping, to a restaurant, out for entertainment at a cinema or bowling.
Most people now also pay for those things by touching their phone on a payment device or by using a debit or credit card.
Again, no physical cash.
An interesting fact:
Think about when you are paid your salary from your employment.
That money is usually sent to your account.
And no, there is not a truck that goes around depositing the salaries of your company’s employees, to their individual banks.
The payroll or wages department uses computer software to transfer electronic or digital money from the companies account to each of the employees’ bank accounts.
And before that, the payroll department calculates all of the tax owed by each employee, and sends that payment as electronic or digital money to the tax department of that nation.
Now we can take a brief look at how the world’s governments move money around.
A great example is how many of the federal government payments are made in the U.S.A.
Federal payments are made via the Automated Clearing House (ACH).
What is an ACH transaction?
ACH means Automated Clearing House, a U.S. method of electronic funds transfers that enables banks, businesses and individuals to perform electronic money transfers from one account to another.
The U.K. has a similar system called the Association for Payment Clearing Services (APACS).
For more information on this, follow the above link and see page 402.
Early Forms Of Digital Money.
As stated earlier, this section is about Digital Money, but we should also have at least a basic understanding of it’s predecessor ‘Electronic Money’.
We don’t need to examine their scientific differences in this module, but if you like, you can learn more about the two and how they differ, HERE.
The Humble Beginnings Of Electronic Funds Transfer (EFT).
Western Union Has Been Moving Money For Over 150 Years.
One of the world’s largest money transfer firms started out as a telegraph company and didn’t become a financial services company until later.
Since 1851, Western Union’s main business for it’s first 15 years was sending telegrams.
Western Union has been instrumental in establishing the communications network in the U.S.A. and installed the first transcontinental telegraph cable. It made it possible for people in the eastern United States to communicate with the rapidly growing western United States.
Western Union also sponsored an expedition to survey a route across Russian-controlled Alaska and Siberia. Western Union then helped broker the sale of Alaska to the U.S.A. in 1867.
In 1871 they decided to add ‘Electronic Funds Transfer’ to their services.
As early as February 1871, Western Union had started to rapidly expand.
By that time they were sending customers money between, Boston, Chicago and New York. By the end of that same year, Western Union had successfully been able to do customer funds transfers over most of the U.S.A.
They even had a credit card as early as 1914, which they called ‘Metal Money’.
From 1982 they decided to expand their business globally and do international money transfers using Electronic Funds Transfer (EFT), which is still their main business today.
Western Union has come a VERY long way since it’s early beginnings as a company sending telegrams.
It has paved the way for many other companies and organizations to use electronic and digital transactions. Whether we like it or not, using these modern technologies has become a normal part of our daily lives.
Just imagine if we had to go back to how it was before.
Every time you want to pay a bill, you have to:
- Leave your home.
- Travel to the bank and withdraw the money.
- Travel to the place where the bill is owed and make a payment there.
- Travel home.
Central Bank Digital Currencies Beginnings.
Now we’ve explored the history of the early electronic payment methods, let us begin to bring everything up to date.
To do this we have to explore two huge factors that have prepared us for digital currencies.
Credit and debit cards and the Internet.
Credit And Debit Cards.
A lot happened in the payment processing industry between the 1870s and the 1960s.
For example around 1910 the Federal Reserve also started using the telegraph system to transfer money.
In the 1950s, Diner’s Club International and American Express both introduced credit cards that could be used for electronic payments.
Credit and debit cards have become a part of everyday life.
In some parts of the world, we use them so frequently that they have been integrated into our best friend – the smart phone.
They are such a big part of our lives now and will continue to be, even as currency changes, that we must mention them when speaking about the history of Central Bank Digital Currencies.
History Of Credit And Debit Cards – A Timeline.
1885 – Paper loyalty cards are used.
1928 – Metal plate-based credit cards are in vogue.
1950 – The Diners Club – the first modern era credit card – is introduced.
1959 – The first plastic credit card is rolled out.
1969 – Credit cards with magnetic stripes are introduced.
1987 – The first travel rewards cards are introduced and immediately become popular.
2002 – So-called “mini credit cards” which fit on a key fob, are introduced, but not embraced by the public.
2011 and 2014 – Google Wallet and Apple Pay are made available to mobile phone users.
2015 – EMV chip cards are introduced.
The above timeline and more information on the history of credit cards, can be found HERE.
By the 1970s, computers and electronic payment transactions where such a huge part of the purchasing process that the Automated Clearing House (ACH) was created to handle the massive amounts of transactions that were being generated.
Electronic And Digital Money And The Internet.
In the 1960s a new and highly sophisticated communications network was developed.
It was called ARPANET.
The Advanced Research Projects Agency Network (ARPANET), was designed and built by the Advanced Research Projects Agency, which has been renamed Defense Advanced Research Projects Agency (DARPA), and is part of the United States Department Of Defense.
As you now know and have experienced, the Internet has created millions of new opportunities for all of humanity.
Some of the most useful (and profitable) of all of these opportunities have been found within the finance and banking industries.
For a while during the 1990s, when internet banking services first became available, the services offered where difficult to use and not user-friendly at all.
But by the early to mid 2000s, online banking services had greatly improved.
Telecommunications specialists, software developers, financial and banking professionals worked closely together, to create excellent online banking and money transfer services, and more and more companies and people began to enjoy the benefits.
By 1994 retail companies such as Amazon saw the potential of this new and lucrative trend, which we now call e-commerce, and they started accepting payments online.
As you probably know, Amazon now receives billions of dollars every year, in online payments.
In October 2022, the figure was in the region of 470 Billion United States Dollars per year.
More on this topic can be found HERE and HERE.
From the early 2000s up to today, the customer experience using online shopping and online banking has become almost seamless. It is now very easy to use for everyone.
You can now spend money in physical shops, or with mobile service providers such as car valeting businesses, online shops such as Amazon, or you could even check out this funny and cool T-shirt from The PD Cafe.
It doesn’t end there, you can spend money on mobile social media platforms as Facebook or many of the other apps that you may have installed on your smart phone.
You can even spend money hundreds of miles out to sea, while on an ocean cruise or while you are a few miles above the earth in an airplane!
To make online purchases possible you must have:
- Somewhere to spend money. An online shop.
- Somewhere to get the money from. An online bank, account or wallet.
- Secure communications between those 2 points.
- But more importantly, something to spend!
Electronic And Digital Currencies. Past And Present.
Following is a list of electronic and digital currencies that have been significant leading us to where we are today, in terms of how easily we can pay for things and send and receive money. They are also part of the path that has led us to Central Bank Digital Currencies.
Surprisingly this was officially the first cryptocurrency.
The idea was created in 1983 by David Chaum. It was the first electronic cash system that could be used for everyday transactions.
His idea included the currency having the ability to be transferred between individuals securely and privately. It actually had many similarities to the cryptocurrencies we have today.
Chaum started a company named DigiCash to make his idea for a cryptographic electronic money system, a reality.
The crypto currency he created was called eCash.
Unfortunately DigiCash went bankrupt in 1998. But the technologies used by eCash and its encryption tools played a key role in developing digital currencies, such as Bitcoin and Ethereum.
Dr. Douglas Jackson and Barry Downey discovered a method of connecting gold to electronic money. A website was used to transfer ownership of the gold between it’s users. Unfortunately the website gained notoriety as being a market place for money launderering and other illegal activities.
BitGold is a cryptocurrency created by Nick Szabo, one of the first blockchain pioneers. His ideas were key in creating bitcoin, which then became the world’s most popular cryptocurrency.
Bit Gold was built using blockchain technology. It shares many of the same concepts as Bitcoin, such as decentralization, cryptographic encryption, a ledger and mining.
As a decentralized, peer-to-peer network, it allowed people to send money to each other without using a bank.
Szabo’s goal was for Bit Gold to reflect the properties of real gold so that it can be used as an alternative to gold for people who want to be able to remove the middleman from transactions.
While Bit Gold did well, it ultimately failed.
But it still regarded as the inspiration for digital currencies that would enter the market decades after its introduction.
In 1998, software developer Wei Dai suggested a “distributed electronic cash system” that was anonymous and could be used over the Internet.
B-Money was similar to Bitcoin in several ways:
- Use of contracts
- Peer to Peer
Satoshi Nakamoto even referenced some aspects of B-Money in the Bitcoin whitepaper.
So we can see that B-Money was definitely part of the growth and evolution of crypto currency.
However, Wei Dai’s proposed B-money whitepaper failed to get much attention. It wasn’t the whitepaper that caused the issue, but rather a lack of market awareness which led to the project never being launched.
A cryptocurrency developed in the 1990s, called Hashcash, was one of the most successful precursors to bitcoin.
Hashcash was developed as a response to several internet related major internet problems, including email spam and distributed denial of service (DDoS) attacks.
Hashcash used a proof-of-work algorithm, to help distribute new coins, much like some of the cryptocurrencies in use today.
This also meant that Hashcash experienced the same problems that some cryptocurrencies experience today.
By 1997 the problem of the required processing power, became too high. This led to Hashcash becoming less and less effective.
Eventually interest in Hashcash lessened and it’s usage stopped.
But, many of the elements used in Hashcash, found their way into our current cryptocurrencies.
Q coins or QQ coins were a type of digital currency that was used on the Tencent QQ messaging platform, which is one of the most popular messaging platforms in China. Q coins were introduced in 2002 as a way for users to purchase virtual goods, such as stickers and emoticons, on the platform.
Q coins were originally designed as a type of virtual currency that users could purchase with real money and then use to make purchases within the QQ platform. However, they quickly gained popularity as a commodity-based digital currency, with users trading Q coins among themselves for goods and services. Q coins could also be exchanged for other digital currencies, such as bitcoin, and used to make purchases on other platforms.
Tencent QQ, the company that operates the QQ messaging platform, benefited from the popularity of Q coins because it earned a percentage of every Q coin transaction. However, the use of Q coins also raised concerns about money laundering and other illegal activities, and the Chinese government eventually implemented stricter regulations on their use. Despite these regulations, Q coins remain a popular digital currency in China and are still used on the QQ platform.
E-gold was an electronic currency system that was created in 1996 by Douglas Jackson and a group of investors. It was one of the first digital currencies to be used for online transactions, and it gained a significant following in the late 1990s and early 2000s.
E-gold was based on a simple concept: users could purchase small amounts of gold and have it stored in a secure third-party facility, and then use their e-gold account to make payments online. The value of an e-gold account was based on the value of the gold stored in it, and users could buy and sell e-gold using various currencies, including the US dollar, the euro, and the pound sterling.
E-gold was popular because it offered a safe and secure way to make payments online, as gold is a widely accepted and stable store of value. However, e-gold also faced numerous legal and regulatory challenges, and it struggled to maintain its reputation as a reliable and trustworthy payment system. The company that operated E-gold, Gold & Silver Reserve, Inc., eventually shut down the service in 2009.
WebMoney is a digital currency and financial services platform that was created in 1998 in Russia. It is one of the oldest and most widely used digital currency systems in the world, and it has a large following in Russia and other countries in Eastern Europe and Central Asia.
WebMoney allows users to create digital wallets and store, transfer, and manage various types of digital assets, including fiat currencies, cryptocurrency, and other types of digital tokens. It also offers a range of financial services, such as online payments, peer-to-peer transactions, and business-to-business payments.
To use WebMoney, users must create an account and link it to a bank account or credit card. They can then transfer funds into their WebMoney account and use them to make payments or transfer them to other users. WebMoney is popular because it offers fast and convenient online payments, as well as a high level of security and privacy. However, it has also faced criticism for facilitating illegal activities, such as money laundering and fraud, and it has faced regulatory challenges in some countries.
Liberty Reserve was a digital currency system that was founded in 2006 by Arthur Budovsky, a Costa Rican businessman. It was designed to allow users to transfer money online and make payments to merchants and other individuals in a secure and anonymous manner.
Liberty Reserve operated as a centralized digital currency system, meaning that it was not based on blockchain technology and was not decentralized like many other digital currencies. Instead, Liberty Reserve maintained a central server that processed and verified transactions, and users could access their accounts through the Liberty Reserve website or through third-party exchange services.
Liberty Reserve was popular because it offered fast and cheap international money transfers, as well as the ability to make anonymous transactions. However, it was also criticized for its lack of transparency and for facilitating illegal activities, such as money laundering and fraud. In 2013, the US government shut down Liberty Reserve and indicted Budovsky and several other individuals for operating an unlicensed money transmitting business and engaging in money laundering.
Perfect Money is a digital currency and financial services platform that was created in 2007. It is based in Panama and operates globally, offering a range of financial services, including online payments, peer-to-peer transactions, and business-to-business payments.
To use Perfect Money, users must create an account and link it to a bank account or credit card. They can then transfer funds into their Perfect Money account and use them to make payments or transfer them to other users. Perfect Money offers a range of features, including fast and convenient online payments, high levels of security and privacy, and low fees.
Like many other digital currency systems, Perfect Money has faced criticism for facilitating illegal activities, such as money laundering and fraud. It has also faced regulatory challenges in some countries. However, it remains a popular platform for online payments and has a large user base in Russia and other countries in Eastern Europe and Central Asia.
It can also be said that Central Bank Digital Currencies have also been inspired by Bitcoin and other blockchain based cryptocurrencies.
Mobile Digital Wallets.
A mobile digital wallet is a software application that allows you to store, manage, and use digital payment methods, such as credit cards, debit cards, and loyalty cards, on your mobile device. The wallet is usually linked to your bank account or credit card, and it can be used to make purchases in-store or online, as well as to send or receive payments from other people.
To use a mobile digital wallet, you first need to download the app and set it up on your device. This usually involves entering your personal and financial information, such as your name, address, and credit card details. Once you have set up your wallet, you can add payment methods to it by scanning or manually entering the details of your cards.
Mobile digital wallets offer a convenient and secure way to make payments, as they use advanced security measures, such as encryption and two-factor authentication, to protect your financial information. They also allow you to make payments quickly and easily, as you don’t need to physically swipe or insert a card or enter your card details every time you make a purchase. Some mobile digital wallets also offer additional features, such as the ability to track your spending, view your transaction history, and receive special offers and discounts from participating retailers.
A number of electronic money systems use contactless payment transfer in order to facilitate easy payment and give the payee more confidence in not letting go of their electronic wallet during the transaction.
- In 1994 Mondex and National Westminster Bank provided an “electronic purse” to residents of Swindon
- In about 2005 Telefónica and BBVA Bank launched a payment system in Spain called Mobipay which used simple short message service facilities of feature phones intended for pay-as-you-go services including taxis and pre-pay phone recharges via a BBVA current bank account debit.
- In January 2010, Venmo launched as a mobile payment system through SMS, which transformed into a social app where friends can pay each other for minor expenses like a cup of coffee, rent and pay a share of the restaurant bill when one has forgotten their wallet. It is popular with college students, but has some security issues. It can be linked to a bank account, credit/debit card or have a loaded value to limit the amount of loss in case of a security breach. Credit cards and non-major debit cards incur a 3% processing fee.
- On 19 September 2011, Google Wallet released in the United States to make it easy to carry all one’s credit/debit cards on a phone.
- In 2012 Ireland’s O2 (owned by Telefónica) launched Easytrip to pay road tolls which were charged to the mobile phone account or prepay credit.
- The UK’s O2 invented O2 Wallet at about the same time. The wallet can be charged with regular bank accounts or cards and discharged by participating retailers using a technique known as ‘money messages’. The service closed in 2014.
- On 9 September 2014, Apple Pay was announced at the iPhone 6 event. In October 2014 it was released as an update to work on iPhone 6 and Apple Watch. It is very similar to Google Wallet, but for Apple devices only.
Timeline from https://en.wikipedia.org/wiki/Digital_currency
The Bank Of Finland Avant E-Money Card.
Finland’s Avant e-money card was created and issued by the Bank Of Finland in the 1990s.
The Bank of Finland actually began its Avant project in 1993, and in some ways, it was ahead of it’s time. The card was basically a pre-paid top up card, that had a chip which is where the digital money was ‘stored’.
The Bank Of Finland thought that the Avant card would eventually replace cash for low-value payments. But although Avant looked good in theory, the major problem with the Avant card was that consumers had to pay to top-up the card and they also had to pay to withdraw from ATMs (electronic cash machines). This was a problem for most people as their normal ATM withdrawals were free.
Although the card was popular among consumers, with around 900,000 cards in circulation, in 2003 use of the Avant e-money card stopped.
This happened because of 3 main reasons:
- The costs involved topping up and making purchases, eventually made the card users dissatisfied.
- Many shops and Finnish merchants did not want to spend the money to invest in the card readers. This meant that the card could only be used in certain places and not everywhere.
- The debit and credit card companies had made great advancements which resulted in their sytems becoming more desirable to consumers.
This interesting interview below with Aleksi Grym, gives a deeper insight into the rise and fall of The Bank Of Finland’s Avant digital payment system.
Cypherpunks, The Philosophy Of Stateless Currency And The Crypto Anarchist Manifesto (1992).
The Cypherpunks were a group of activists, computer scientists, and cryptographers who were interested in the use of cryptography and digital technologies for social and political change. They were active in the 1990s and early 2000s and played a significant role in the development and promotion of decentralized digital currencies, such as bitcoin.
The Cypherpunks were founded in 1992 by Eric Hughes, Timothy C. May, and John Gilmore, who were interested in exploring the potential of cryptography and digital technologies to promote privacy, individual freedom, and social and political change. They started meeting in person in San Francisco and eventually adopted the name “Cypherpunks” to reflect their focus on cryptography and their belief in the power of technology to change society.
The Cypherpunks were known for their strong commitment to privacy and individual freedom, and they believed that cryptography and other privacy-enhancing technologies could be used to protect these values in the digital age.
In addition to their technical expertise, the Cypherpunks were also active in the broader political and social debates around the use of technology. They were known for their strong Libertarian views and their belief in the power of technology to empower individuals and challenge the status quo. Many of the Cypherpunks were involved in the development of decentralized digital currencies, such as bitcoin. They were also interested in the potential of decentralized digital technologies, such as blockchain and peer-to-peer networks, to create more open, transparent, and efficient systems for a wide range of applications, including money, communication, and information exchange. Their ideas and efforts have had a lasting impact on the evolution of these technologies.
The philosophy of stateless currency, which was advocated by the Cypherpunks and other early proponents of digital currencies, is based on the idea of creating a decentralized, borderless, and global monetary system that is not controlled by any government or financial institution. This type of monetary system would be based on open-source software and decentralized networks, and it would use cryptographic techniques to ensure security and privacy.
The goal of stateless currency is to create a more transparent, efficient, and secure monetary system that is not subject to the same risks and limitations as traditional financial systems, such as inflation, devaluation, and financial crises. It is also intended to promote individual freedom and autonomy by allowing individuals to control their own financial resources and make transactions without the need for intermediaries.
Although the concept of stateless currency has gained some traction and has inspired the development of decentralized digital currencies, such as bitcoin, it remains a controversial and debated topic. There are many challenges and considerations associated with creating and implementing a stateless monetary system, and it is not clear how it would function in practice.
The Cypherpunks mailing list was an active forum for technical discussion and political debate on topics related to cryptography, math, computer science, politics, and philosophy. It was created in 1992 by the founders of the Cypherpunks, Eric Hughes, Timothy C. May, and John Gilmore, as a way to connect with like-minded individuals and share ideas and information.
The mailing list was open to anyone who was interested in participating and quickly became a hub of activity for the Cypherpunks and other technical experts who were interested in the use of cryptography and digital technologies for social and political change. The mailing list was used to discuss a wide range of topics, including technical innovations in cryptography, the potential applications of digital technologies, and the broader implications of these technologies for society.
Timothy C. May’s The Crypto Anarchist Manifesto (1992) was a widely influential document within the Cypherpunks community and beyond. In the manifesto, May outlined his vision for a decentralized, borderless, and global monetary system that is not controlled by any government or financial institution. This type of monetary system would be based on open-source software and decentralized networks and would use cryptographic techniques to ensure security and privacy.
May argued that this type of monetary system, which he referred to as “stateless currency,” would be more transparent, efficient, and secure than traditional financial systems and would promote individual freedom and autonomy by allowing individuals to control their own financial resources and make transactions without the need for intermediaries. He also argued that new technologies, such as cryptography and blockchain, would enable the creation of such a system and would have far-reaching implications for society, including the ability to alter the nature of government regulation, taxation, and control
Eric Hughes’ A Cypherpunk’s Manifesto is a document that outlines the core principles and goals of the Cypherpunk movement. Hughes, who was one of the founders of the Cypherpunks, wrote the manifesto in 1993 as a way to summarize the key ideas and values that motivated the Cypherpunks and to inspire others to join their cause.
The manifesto begins by stating that “Privacy is necessary for an open society in the electronic age,” and argues that anonymity is an essential component of privacy in an open society. Hughes goes on to argue that anonymous transaction systems, such as cash, are necessary to protect privacy and that cryptography is essential for enabling secure and private communication.
The manifesto also emphasizes the importance of decentralization and individual control, stating that “We cannot expect governments, corporations, or other large, faceless organizations to grant us privacy out of their beneficence.” Instead, Hughes argues that individuals must take responsibility for their own privacy and security and build their own systems for protecting it.
Overall, A Cypherpunk’s Manifesto outlines the core principles of the Cypherpunk movement and emphasizes the importance of privacy, decentralization, and individual control in the digital age. These principles continue to be relevant today and have influenced the development of digital currencies, blockchain technology, and other decentralized technologies.
To summarize, the mission of the Cypherpunks was to build open source systems designed to defend privacy for everyone in this technological era. They believed that individuals should have the power to reveal their identity and words only when desired, and that neither governments nor corporations can sufficiently protect this right. They were also committed to promoting decentralization and individual control as a way to empower individuals and challenge the status quo. The Cypherpunks’ efforts to promote decentralized, secure, and private digital technologies have contributed to the growth and evolution of digital currency systems and have helped to shape the broader discourse on the role of technology in society.
The Cypherpunk movement played a significant role in the development of digital currencies, blockchain technology, and bitcoin. Many of the early proponents of bitcoin, including the pseudonymous creator Satoshi Nakamoto, were members of the Cypherpunks or were inspired by their ideas.
Satoshi Nakamoto quoted a number of cypherpunks in the Bitcoin whitepaper and first announced the whitepaper and genesis block creation through the Cypherpunks mailing list.
Some of the early Cypherpunks became the main software developers for Bitcoin including Hal Finney and Adam Back.
Understanding Central Bank Digital Currencies.
The previous sections should have brought you right up to date.
Now let’s tie it all together.
Countries Where Central Bank Digital Currencies (CBDCs) Already Exist Or Are Being Created.
The Bank Of England’s Central Bank Digital Currency : A Video Case Study Into What CBDCs Could Mean For Citizens.
The European CBDC.
Goals of Central Bank Digital Currencies.
Central bank digital currencies (CBDCs) are digital versions of a central bank’s currency that can be used by households, businesses, and financial institutions.
The goals of CBDCs can vary depending on the specific circumstances and needs of the issuing central bank. In general, however, the main goals of CBDCs may include:
- Improving the efficiency and accessibility of the payment system: CBDCs can potentially make it easier and faster for people to access and use central bank money, potentially reducing the reliance on cash and increasing the speed of transactions.
- Enhancing financial stability: CBDCs may help to reduce the risk of bank runs and other financial stability issues by providing an alternative means of holding central bank money.
- Promoting financial inclusion: CBDCs may make it easier for people who are currently unbanked or underserved by the financial system to access and use digital financial services.
- Supporting the implementation of monetary policy: CBDCs may provide central banks with additional tools to implement monetary policy, such as the ability to directly target the quantity of CBDCs in circulation.
It’s important to note that these goals may not all be relevant in every case, and the specific goals of a CBDC will depend on the needs and circumstances of the issuing central bank.
The Implementation Of CBDCs.
The specific implementation of a CBDC will depend on the needs and circumstances of the issuing central bank, as well as the legal and regulatory framework in which it operates.
There are several different models for implementing CBDCs, including:
Account-based CBDCs: This model involves the issuance of CBDCs in the form of digital accounts that are held directly with the central bank.
Token-based CBDCs: This model involves the issuance of CBDCs in the form of digital tokens that are stored in a digital wallet or on a blockchain.
Hybrid CBDCs: This model combines elements of the account-based and token-based models.
Regardless of the specific model chosen, the implementation of a CBDC will typically involve the following steps:
Design and development: This involves the creation of the technical infrastructure and systems needed to issue, manage, and use CBDCs.
Testing and piloting: This involves the implementation of small-scale tests or pilots to assess the feasibility and effectiveness of the CBDC.
Rollout: This involves the full-scale implementation of the CBDC, including the distribution of CBDCs to households, businesses, and financial institutions.
Monitoring and evaluation: This involves the ongoing monitoring and evaluation of the CBDC to assess its impact and identify any needed improvements.
It’s important to note that the process of implementing a CBDC can be complex and time-consuming, and may require the involvement of multiple stakeholders, including central banks, governments, and financial institutions.
What Are The Benefits And Risks Of CBDCs?
CBDCs may offer a number of benefits, but they may also pose certain risks.
Benefits of CBDCs may include:
- Improved efficiency and accessibility: CBDCs can potentially make it easier and faster for people to access and use central bank money, potentially reducing the reliance on cash and increasing the speed of transactions.
- Enhanced financial stability: CBDCs may help to reduce the risk of bank runs and other financial stability issues by providing an alternative means of holding central bank money.
- Promoted financial inclusion: CBDCs may make it easier for people who are currently unbanked or underserved by the financial system to access and use digital financial services.
- Increased control over monetary policy: CBDCs may provide central banks with additional tools to implement monetary policy, such as the ability to directly target the quantity of CBDCs in circulation.
Risks of CBDCs may include:
- Cybersecurity threats: CBDCs may be vulnerable to cyber attacks, which could compromise the security and confidentiality of transactions.
- Privacy concerns: The use of CBDCs may raise concerns about the privacy of individuals’ financial transactions, particularly if they are traceable.
- Disintermediation of financial institutions: CBDCs may reduce the role of traditional financial institutions in the payment system, potentially leading to disintermediation and a reduction in their profitability.
- Legal and regulatory challenges: The implementation of CBDCs may require the development of new legal and regulatory frameworks, which could be complex and time-consuming.
It’s important to note that the benefits and risks of CBDCs will depend on the specific circumstances and needs of the issuing central bank, as well as the legal and regulatory framework in which it operates.
What Are The Different Types of CBDCs?
In terms of making payments, storing value, and settling financial transactions, there are two main types of CBDCs:
- Account-based CBDCs.
In this type of CBDC, the central bank maintains an account for each user and tracks their transactions on a centralized ledger. The central bank can use these accounts to directly transfer funds between users, similar to how traditional bank accounts work.
- Token-based CBDCs.
In this type of CBDC, the central bank issues digital tokens that represent a specific unit of the currency. These tokens can be transferred between users and stored on a decentralized ledger, similar to how cryptocurrencies work.
Some countries are considering issuing both types of CBDCs, with the account-based version being used for larger transactions and the token-based version being used for smaller, everyday transactions.
It’s important to note that CBDCs are still in the early stages of development and are not yet widely available. Some central banks are exploring the possibility of issuing CBDCs, but it is not yet clear which countries will ultimately adopt them or what form they will take.
What Are The Difference between retail CBCDs and wholesale CBDCs?
Retail central bank digital currencies (CBDCs) are digital versions of fiat currencies that are made available to the general public for everyday transactions, such as paying for goods and services or transferring money between individuals. Retail CBDCs are meant to be used by a wide range of users, including individuals, businesses, and financial institutions.
Wholesale CBDCs, on the other hand, are digital versions of fiat currencies that are made available to financial institutions for use in interbank settlements and other wholesale financial transactions. They are not intended for use by the general public.
One key difference between retail and wholesale CBDCs is the way they are accessed and used. Retail CBDCs are usually accessed directly by users through a digital wallet or similar platform, while wholesale CBDCs are accessed through a centralized platform controlled by the central bank or other authorized financial institutions.
Another difference is the level of anonymity provided. Retail CBDCs may offer a higher level of anonymity, as they are intended for use by the general public and may not require users to identify themselves. This however, is not likely to be the case.
Wholesale CBDCs, on the other hand, may require financial institutions to identify themselves and provide information about the transactions they are conducting.
It’s important to note that CBDCs are still in the early stages of development and are not yet widely available. Some central banks are exploring the possibility of issuing CBDCs, but it is not yet clear which countries will ultimately adopt them or what form they will take.
CBDCs vs. Cryptocurrencies.
Central bank digital currencies (CBDCs) and cryptocurrencies are both digital forms of currency, but they have several key differences:
- Issuance and backing: CBDCs are issued and backed by central banks, while cryptocurrencies are issued and backed by decentralized networks of computers running on a blockchain.
- Purpose and use: CBDCs are intended to be used as a means of payment and store of value, similar to traditional fiat currencies. Cryptocurrencies, on the other hand, are primarily used as a store of value and a means of exchange, although they can also be used for a variety of other purposes.
- Regulation: CBDCs are subject to regulation by central banks and other government authorities, while cryptocurrencies are largely unregulated.
- Anonymity: Some CBDCs may offer a higher level of anonymity than traditional bank accounts, but they are generally not as anonymous as cryptocurrencies, which can provide a high level of anonymity to users.
- Decentralization: CBDCs are generally issued and managed on a centralized basis by central banks, while cryptocurrencies are decentralized and managed by a network of computers running on a blockchain.
Is a CBDC, a Cryptocurrency?
No, central bank digital currencies (CBDCs) are not cryptocurrencies. CBDCs are digital versions of fiat currencies issued and backed by central banks. They can be used by the general public and financial institutions for a variety of purposes, including making payments, storing value, and settling financial transactions.
Cryptocurrencies, on the other hand, are digital or virtual currencies that use cryptography for secure financial transactions and to verify the transfer of assets. They are decentralized and not backed by any central authority, such as a central bank. Bitcoin, Ethereum, and Litecoin are examples of well-known cryptocurrencies.
While CBDCs and cryptocurrencies share some similarities, they have several key differences. CBDCs are issued and backed by central banks and are subject to regulation, while cryptocurrencies are decentralized and largely unregulated. CBDCs are intended to be used as a means of payment and store of value, similar to traditional fiat currencies, while cryptocurrencies are primarily used as a store of value and a means of exchange, although they can also be used for a variety of other purposes.
Is CBDC Based on Blockchain?
It depends on the type of central bank digital currency (CBDC) being used. Some CBDCs may be based on blockchain technology, while others may use a different type of distributed ledger technology (DLT) or a centralized ledger system.
Token-based CBDCs, which represent a specific unit of the currency, are more likely to be based on blockchain technology. In this case, the central bank issues digital tokens that can be transferred between users and stored on a decentralized ledger, similar to how cryptocurrencies work.
Account-based CBDCs, on the other hand, are more likely to use a centralized ledger system. In this type of CBDC, the central bank maintains an account for each user and tracks their transactions on a centralized ledger. The central bank can use these accounts to directly transfer funds between users, similar to how traditional bank accounts work.
The Advantages And Disadvantages Of Central Bank Digital Currencies (CBDCs).
You’ll notice is very similar to the one Risks And Benefits comparison.
Here are some potential advantages of CBDCs:
- Increased accessibility: CBDCs can be accessed and used by anyone with an internet connection, which can make it easier for people in remote or underserved areas to access financial services.
- Increased efficiency: CBDCs can potentially be used to facilitate faster and cheaper transactions, as they can be transferred and settled electronically without the need for intermediaries.
- Increased financial inclusion: CBDCs can potentially make it easier for people who are unbanked or underbanked to access financial services, as governments will create new and innovative ways to get all of their citizens involved.
- Increased stability: CBDCs can potentially provide a stable store of value, as they are issued and backed by central banks, which can help to reduce the risk of inflation.
Here are some potential disadvantages of CBDCs:
- Security and privacy risks: CBDCs may be vulnerable to hacking and other cybersecurity threats, as well as to potential abuses of personal data.
- Potential impact on the financial sector: CBDCs could potentially disrupt the traditional financial sector, as they may compete with traditional banks and other financial institutions.
- Legal and regulatory challenges: The issuance and use of CBDCs may raise a number of legal and regulatory challenges, including issues related to money laundering, terrorism financing, and tax evasion.
- Technological challenges: The development and implementation of CBDCs may require significant technological infrastructure and resources, which could be challenging for some central banks.
Gradually broadening my scope of knowledge on the various digital currencies. It’s always good to learn new things.