Interest in all aspects of the cryptocurrency industry, whether it is digital currencies themselves or the underlying blockchain technology, from central banks has been increasing rapidly over the last 24 months. While on the surface this brings a level of validity and publicity to the cryptocurrency industry, it is important to examine exactly how the technology is being proposed to be implemented to understand whether this is good for the industry moving forward.
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After a flurry of interest, a lot of statements from bank leaders and a high quantity of reports, central banks from around the world have been showing significant interest into the cryptocurrency industry. While a lot of this interest has been focused on blockchain and the adaptability of the distributed ledger model to add efficiencies to banking operations, there has also been significant interest in the concept of central bank owned digital currencies, and the possibilities they offer, notably from major central banks such as the Bank of England.
However, while such interest and public acknowledgement of the digital currency industry is welcome, there are questions to be asked about what it means for cryptocurrencies long term, based upon the direction of thought so far displayed.
The key concept that the various central bank proposals and announcements have in common is that of the closed system. Whether it is blockchain applications for internal operations, or creating a new digital currency to enhance their existing fiat currency operations, everything they discuss is always a closed, proprietary solution.
This in many ways misses the most unique and important aspect of cryptocurrencies, the public distributed ledger system that removes central control from the system. It is the defining aspect of Bitcoin and other digital currencies, and for many the reason that they have invested in the concept so heavily. While the focus is on these closed systems, it is inevitable that something is lost to the digital currency solution, and the idea of a global, usable currency alternative to the fiat system is not going to become reality by relying on central bank investment in the industry.
Indeed, it could be perhaps argued that central banks are shying away from the concept of public distributed ledger systems precisely because they are a threat to the jobs they currently occupy, while a series of closed, proprietary solutions specific to each central bank gives the illusion of cryptocurrency progress whilst allowing bank chairmen and executives to retain the control they are used to.
It will be interesting to watch these proposals develop into solutions, and whether the wider audience will adopt them at all, or focus on the public systems that operate independently of the status quo.