Written by 6:21 pm Bitcoin

Why Countries Should Embrace Bitcoin Instead Of Their Own Central Bank Digital Currency

As countries around the world rush to think through how to approach the digital transformation of the global economy, one common point is to look at payment system. While most payments in the modern financial system are digital (for example, the way a central bank tabulates the amount of reserves available for its member banks), cash is still a way many people choose to make payments. However, this percentage is dropping and currently represents about a 18% share of global transactions.

Cash makes payments very difficult to track by a centralized entity and allows for a degree of decentralization through technological barriers — a government cannot hope to manage pieces of paper handed out to all of its citizens in a coherent manner.

This allows for a form of relatively anonymous transaction that preserves citizen privacy. It still maintains a check and balance: i.e it is quite hard to move large bales of physical cash (thus why criminals of all kinds still use bank reserves such as relationships with conventional banks to move some of their funds). Still, many countries are working to get off of cash standards and towards more and more electronic payments and digital rails throughout their economy.

This central bank digital currency tracker demonstrates this trend. Quite a few countries have started exploring their own central bank digital currency. However, most central bank digital currency initiatives as of late 2022 ,if not all of them, are in pilot stage at best. None has fully launched at scale and become the default payment option for a nation-state at scale.

Even the e-CNY or digital yuan that the People’s Republic of China has launched is still at early pilot stages in certain cities.

Even as China seeks to define electronic cash standards for the rest of the world, its own efforts still haven’t fully rolled out yet — though the consolidation that comes from going after CEOs such as Jack Ma that have control over domestic payment rails and China’s totalitarian structure can allow it to move quickly in this regard.

Yet there are many reasons for nation-states not to go the same path as the People’s Republic of China and instead embrace an open source payments standard that trades peer-to-peer rather than being imposed top-down.

1- Bitcoin
brings talent from across the world

Instead of wrangling with domestic talent pools, bitcoin brings very sharp thinkers from around the world across all elements, from economics to technology, to any country that embraces bitcoin as a standard. This was the case in El Salvador, as people with different entrepreneurial and technical backgrounds helped the country think through adoption from bond issuance, to the types of digital infrastructure needed to carry out a bitcoin-backed economy.

It also helped put El Salvador on the map for tourism and for digital nomads thinking through their next destination. Bitcoin allows for a country to benefit from the consolidated open-source work of thousands of individuals if not millions outside their border that have thought through hard digital payments/value problems over the course of the last decade.

2- Proven security and consistency

Bitcoin is secured by computing power around the world, and has consistently minted blocks since its inception. While individual wallets and exchanges can have issues, the system as a whole has not failed — like a predictable, ticking clock, it brings forward transactions from around the world at a predictable heartbeat.

Lots of thought has been placed on how to secure digital transactions, with bitcoin’s infrastructure of relying on physical hardware keys, strong passwords, and seed phrases unparalleled in any conventional financial system. There is also a game theory aspect to bitcoin’s security that no electronic currency has come close to — namely the ability to secure billions of dollars in transactions every day that has been proven out around the world for more than a decade.

3- Modernization without being beholden

Bitcoin brings with it a full payments stack without needing help from a nation-state bloc to implement, allowing a country to become truly independent of any of the polar powers in the world. Lightning allows for private, low-transaction and instant payments between different stores and individuals, allowing for a digital payment rails that has overseas acceptance, technology that allows for low-fee, instant payments, and a tool stack for businesses looking to accept digital payments.

Bitcoin also allows for countries to choose more of an independent, non-aligned foreign policy — after all, countries that send foreign or military aid to others often have ulterior motives — and since they are centralized nation-states with long-standing power, they can often use their leverage to use and abuse lesser countries, a long-standing trend that has gone on for centuries. Bitcoin can allow for economic benefit while navigating the world splitting into different hostile camps or poles.

This doesn’t mean that countries that embraced bitcoin have split off entirely from polar conflict. El Salvador, for example, is in the maelstrom of having a dollarized economy being attacked by the United States-led financial world order, while getting China’s support for infrastructure being built within its borders.

However, as more and more countries consider how to get from a cash-filled society to a hybrid economy with digital payment rails, bitcoin offers an option of credible non-alignment that neither ties a country to the United States or the People’s Republic of China. El Salvador was placed in the position of having to adapt the US dollar in order to more deeply integrate with the world trade system and for the potential benefit of economic gain. Future countries that face balancing digital payment rails and economic demand should be leery of support that comes from polar powers that easily betray those that are deemed allies or enemies.

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