Amidst news of major banks, both government and private, considering developing their own Blockchains for internal use, a question has to be asked: is there even a point? Given the seemingly self-defeating nature of using decentralized currencies in highly centralized operations, Cointelegraph asked top industry experts from Agentic UK, Lisk and Steemit about their opinion on the matter.
Lucas Cervigni, Managing Director of Agentic UK, explains:
“Recently, central banks have taken the Cryptocurrency asset to the next level by starting to research Cryptocurrencies of their own. As modern banking works under the fractional reserve system, this research makes sense. Through this system, banks are able to issue loans as long as they keep 10% in reserve. In turn, this creates money with each loan. That is not possible with Bitcoin and therefore the banks have begun considering centralized and government controlled cryptocurrencies. However this is a serious matter for the banks to consider, as should the central system issue all of the money, there is no doubt the dynamics of the fractional reserve system could change. Ultimately, the smaller banks could be left out of business.”
State banks eyeing Blockchain
People's Bank of China (PBoC) announced on their website about their own digital currency conference, urging their team to speed up efforts to release its digital currency. Bank of England and Bank of Canada have also considered developing digital currencies.
These types of currencies are called Central Bank-issued Digital Currency (CBDC). What are the implications of CBDC? To create a cashless society, steal the spotlight from Bitcoin and other privately-issued currencies, or to achieve a more accurate monetary policy?
Banks want control
Ned Scott, Founder of Steemit, thinks the bank-issued cryptocurrencies will differ from the protocols we got accustomed to:
“It would be interesting to see what design choices the banks make for their Cryptocurrencies' protocols and how they integrate the currency with their business. With every cryptocurrency there are variables that developers massage in terms of emission and the way they release the protocol into the wild. My feeling is that the profile of these Bank-issued coins would be very different from many of the decentralized protocols we see today. Banks are likely entertaining the idea more seriously if they feel they can control the currency, as well as gain from its use and possibly their manipulation over it.”
A necessary evil
Max Kordek, Founder of Lisk, eхplains why banks may see in Cryptocurrencies a necessary evil:
“This topic requires the consideration of multiple perspectives. If I was a cryptocurrency user with little involvement in this space or knowledge of the current regulations, creating additional currencies could be difficult to comprehend. However, in reality certain laws and obligations could make a customized, maybe even private, Cryptocurrency a necessary evil.
On the other hand, maybe current Cryptocurrencies do not meet the technological requirements a bank deems necessary for a digital currency. For example, perhaps they require a specific peg, specific Block-time, or in fact multiple currencies on one single Blockchain.
It is impossible to be certain of whether a bank-owned, government-owned or public Cryptocurrency will dominate in the future, but I do hope the latter is the case.”
Buterin: Private Blockchains have Advantages
When asked as to what the reason for the banks’ sudden interest in Cryptocurrency, the majority of our audience seem to agree that it is some combination of wanting to stay relevant and trying to control the future development of the Blockchain.
A reasonable stance, considering how Bitcoin, and other Cryptocurrencies have already proven their worth by enabling the users to send transactions faster, cheaper, and with less restrictions, compared to bank transfers.
However, Vitalik Buterin, the co-founder of Ethereum, argues that this trend is not entirely political. According to him, private Blockchains can, in certain contexts, offer several technological and financial advantages, compared to the public ones.
Those advantages stem from the greater control that a bank is able to exert over a private Blockchain, and include less to no risk of a 51% attack, greater level of privacy for the Blockchain’s owner (duh) and even cheaper transactions.
All in all, currently there is no clear consensus regarding the value of privately-owned Blockchains, and their impact on the overall ecosystem, if any, it remains yet to be seen.