By now we all know that the Chinese government has been hard at work trying to create its own digital currency. And the creation of Facebook’s Libra cryptocurrency has given the Chinese a greater urgency to complete their project. But it isn’t just the Chinese who are feeling the pressure. Central bankers and regulators around the world are questioning Facebook, but that questioning has as much to do with their desire to get their own projects off the ground as it does with legitimate concerns about Libra.
Central banks that may have been on the fence about creating their own digital currencies realize now that they either have to fish or cut bait. Libra is forcing their hand, so they either have to develop their own digital currencies or risk forever falling behind Bitcoin, Libra, and other private cryptocurrencies.
The risk is obviously great then that many central banks will rush their digital currencies to market and provide users and consumers with substandard products that lack privacy, security, and other protections that will be so vital to the future of digital currency. And that leads to questions as to whether consumers will adopt central bank-issued digital currencies in numbers anywhere close to where they need to be in order to make them viable currencies in the long term.
The primary problem with central bank-issued cryptocurrencies, as well as private cryptocurrencies such as Libra, is that they are issued by a central authority. That means that the central issuer could very well decide to issue tokens ad infinitum, thus debasing the purchasing power of existing tokens. That’s the way central banks have dealt with paper currency and there’s no reason to believe they wouldn’t do the same thing with digital currencies.
That’s where cryptocurrencies such as Bitcoin come in, as with no central issuer there is no one who can overcome Bitcoin’s 21 million coin limit. Once all bitcoins are mined, that’s it, there will be no new ones. And that means that the value and purchasing power of Bitcoin will continue to increase over time, unlike central bank paper (and presumably also digital) currencies which will continue to fall over time.
That’s why investing in Bitcoin continues to grow in popularity every day. And while central bank digital currencies will undoubtedly spur greater interest in and adoption of cryptocurrencies, it will benefit Bitcoin and similar cryptocurrencies much more than it will benefit governments and central banks.