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Edward Snowden, the former government contractor who denounced the NSA’s domestic surveillance activities, spoke out against the creation of a US central bank digital currency (CBDC) or a govcoin.
The Federal Reserve is expected to release a discussion paper in the coming weeks or months on whether the United States should create its own govcoin. Fed Chairman Jerome Powell told a press conference in late September that the big concern is whether the potential benefits outweigh the risks or the downsides.
What are CBDCs?
CBDCs, also known as govcoins, are cryptocurrencies issued and backed by central banks. Most cryptocurrencies are decentralized, that’s the magic of blockchain technology. One of the attractions of Bitcoin (BTC) when it launched over a decade ago was that it was removing middlemen (banks and governments) from financial transactions.
In contrast, the CBDCs are centralized. The idea is that they offer the benefits of blockchain-based coins, such as fast and cheap transactions, but without the volatility and perceived insecurity of normal crypto.
China is already in the final stages of piloting its digital yuan. And many other countries, including the United States, are weighing the benefits of launching theirs.
Why Snowden called the CBDCs “cryptofascists”
Snowden is a champion of individual freedom and a passionate believer in the importance of protecting people from overly intrusive state control. As such, it’s no surprise that he opposes govcoins.
He tweeted: âA CBDC is a perversion of cryptocurrency, or at least of the founding principles and protocols of it – a cryptofascist currency, expressly designed to deny you basic ownership of your money by installing the state. at the center of every transaction. “
Let’s break down his concerns in more detail. First of all, as we mentioned above, decentralization is part of the DNA of cryptocurrency. Decentralization removes intermediaries and makes us less dependent on third parties such as banks or governments. In a lengthy blog post, Snowden explains that “the technology itself was primarily created to correct the centralization that now threatens it.”
The second part of his argument concerns state control. Snowden argues that it’s not just a digital version of the dollar you hold in your wallet. The government can’t control what you do with the dollar in your wallet, but it could (in theory) influence how you spend a CBDC dollar.
He illustrates this with a scenario involving a man who has been diagnosed with diabetes and told to cut back on sugar. Taken to the extreme, Snowden argues that the CBDCs could in fact allow the state to prevent this man from using his money to buy candy or other products that would be harmful to his health.
Would govcoins damage crypto?
Whether crypto investors agree with Snowden’s doomsday prophecies, there are undoubtedly privacy concerns regarding CBDCs. But the global trend towards govcoins could impact cryptocurrency prices and is worth watching.
Cryptocurrencies come in many different forms and serve a variety of functions. For example, Ethereum (ETH) is a platform on which apps and other cryptocurrencies can be built, but other currencies like Litecoin (LTC), Stellar Lumens (XLM) or Bitcoin Cash (BCH) operate in the digital payment sector.
CBDCs would almost certainly cause difficulties for digital payment cryptos. After all, many people use cryptocurrency because it’s faster and cheaper, not because they believe in the founding principles of crypto. A safer, less volatile option could prove popular.
Stablecoins would probably be the hardest hit. These cryptocurrencies reduce volatility by pegging their value to real world commodities like the US dollar or gold. They are popular with traders because they provide an easy way to enter and exit a particular crypto without having to convert investments into fiat (traditional) currencies. The government is already promising much stricter regulation of stablecoins, and govcoins could kick them out altogether.
Finally, we must not forget that China – the country that currently leads the CBDCs – has banned cryptocurrencies completely. The United States says there are no plans to follow suit and ban crypto, but policies may change.
At the end of the line
There’s a lot we don’t know about CBDCs, especially if the US is going to sue their own govcoin. Privacy activists like Snowden are already pointing out the dangers of increased government involvement in your money matters.
But it’s still early days for crypto, and while the government is pushing ahead with plans for a digital dollar, a lot depends on how it’s designed and implemented.
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Emma Newbery owns Bitcoin, Ethereum, and Stellar Lumens.
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