Why haven't the world's central banks gone after bitcoin? They can't. They've tried, but a sovereign nation can't dictate to bitcoin --
bitcoin is a post-nation state asset and comes with its own monetary system. That said, central banks can try to work
with
bitcoin.
"Central banks could simply step in and offer their own digital currency,
to pre-empt a Bitcoin takeover," said a writer at the
Financial Times. She goes on to say:
There is such a thing already, of
course. It’s what happens whenever central banks buy assets by creating
bank reserves. It’s all just digital entries on a spreadsheet. Creating
central bank “digital currency” simply means offering existing digital
account services to a wider group of entities.
There is one
big difference, reserves retain value based on the value of paper and monetary/fiscal policy; bitcoin retains value based on energy prices and demand. The more bitcoin are made, the harder they are to make and mining operations are popping up everywhere.
So, if central banks can't beat bitcoin, can it work with it? This is the Fed's only real option. Here's a quote from a recent speech by Fed Chairman Governor
Jerome H. Powell in which he lays out three objectives of the Federal Reserve regarding bitcoin:
Today, I will lay out those objectives as we see them at the Federal
Reserve, and focus in particular on their application in three specific
areas where technological innovation is driving change: creating a
real-time retail payments system, using distributed ledger technology to
develop new clearing and settlement services, and the issuance of
digital currencies by central banks.
Note that distributed ledger technology (DLT) refers to cyrptocurrencies like bitcoin. Powell goes on to describe bitcoin in the following way:
Using blockchain technology--which employs a form of DLT--and
an open architecture, Bitcoin allows for the transfer of value
(bitcoins) between participants connected to its ecosystem without
reliance on banks or other trusted intermediaries. This feature has led
some to predict that DLT will in the long run render parts of the
banking and payments system obsolete, as the intermediation of funds
through the banking system will become unnecessary.
Two points: 1) the fed is aware of the potential threat, but 2) only to the extent that it may provide an alternative payment system. In truth, bitcoin is more than a system of payments, it is a system of
value storage. Until we reach 21 million bitcoin, it is also a source of value creation. In this way, it will render more than
parts of the banking system obsolete. We may see a complete collapse.
Bitcoin & The Law
The Fed also seems to understand that the most challenging aspect of bitcoin is that it can't be controlled or tracked. Users have complete anonymity for all transactions. Indeed, similar blockchain technologies are being used to develop digital content platforms that offer the same kind of anonymity as bitcoin. How do you develop laws around something that was developed to be anonymous? Chairman Powell contemplates this question below:
Which bodies of law apply to the
particular firms, assets, and activities will determine the associated
rights and responsibilities when transfers are made, cleared, and
settled. For example, whether and how banking, payments, securities, or
commodities laws apply in a given context are likely to be important in
designing systems and services and understanding their properties.
We will need a thorough
analysis of how DLT fits into current legal frameworks and what gaps
need to be filled by contractual agreements or new laws and regulations.
A robust legal basis that provides certainty across relevant
jurisdictions is essential for building strong governance, risk
management, and operations.
Good luck with that.
He goes on to say that,
A digital currency would also be a prime target as a potential
vehicle for global criminal activities, including money laundering.
Central banks could face difficult trade-offs between strengthening
security and enabling illegal activity. Advanced cryptography could
reduce vulnerability to cyber attacks but make it easier to hide illegal
activity. To the extent we relax strong cryptography to make it easier
for authorities to monitor illegal activity, we could simultaneously
weaken security.
Still, this is the
Fed's security. This is the
Fed's privacy. The Fed's needs aren't always aligned with the needs of the people. Perhaps the reason bitcoin is so popular is because it is naturally aligned with the people.
Final Thoughts On The Digital Currency Revolution
This is the world's first real artificial intelligence challenge.
Bitcoin can take over the nation state without battle or loss of life.
It offers itself to humanity as a system of payments and storage with no
central authority. It has only two demands (for now) -- more computer
hardware and energy. Bitcoin allows users to access the gods of money
without going through the dollar's Vatican, also known as the Federal
Reserve.
Over the next 10 years we will bear witness to a remarkable
digital revolution; it will be a war between the nation-state and technology. They are fighting for control over humanity. It's hard to say what the Fed's next move against bitcoin will be, but one thing is certain, if the Fed could do anything about the rise of bitcoin, it would have done so already.
Bitcoin is a type of digital currency. It is also a payment system and fast approaching unit of account status. Bitcoin was created in 2009 by someone named Satoshi Nakamoto. To this date, no one knows who Satoshi
is. There are many theories (Elon Musk, a supercomputer in China,
etc.), but no one has officially stepped forward to claim the honor. As part of the creation, s/he also created the first blockchain database. Here's a link to the white paper (Bitcoin: A Peer-to-Peer Electronic Cash System) which explains how bitcoin works.
