Bitcoin could be the backbone for CBDCs, as per a new report by Deloitte
In the middle of the controversy of whether Bitcoin is an environmentally feasible cryptocurrency or not, a new report by Deloitte stated that the most valuable Crypto Bitcoin has enough potential to form the backbone for central bank digital currencies (CBDCs).
As per Deloitte's new report titled as State-Sponsored Cryptocurrency, CBDCs need to redesign the traditional monetary ecosystem. The report suggested combining the best attributes of the technology of cryptocurrencies with the features of an established fiat currency under the regulation of a central bank. This can reduce cost and errors and increase speed and efficiency.
An excerpt from Deloitte 2022 Report 'State-sponsored cryptocurrency' stated:
"What would happen if we combined the best attributes of the technology of cryptocurrencies with the features of an established fiat currency under the sponsorship of a central bank? The result very well may just be a new method of handling payments that would revolutionize the current system. With the potential to reduce costs, reduce errors, speed the transfer of money, balance privacy with anonymity, and do it without the day-to-day operational need for a centralized organization, whether commercial or federal, the result could truly be transformational."
Overall, Bitcoin can improve traditional fiat currencies and can help in five core areas — efficiency, speed, security, cross-border payments, and collaboration with other participants.
The report also indicated that the first government that introduces a nationwide CBDC, would be able to influence the use of their national currency in international markets and trades.
Which countries are using CBDCs?
As of today, most countries have not mentioned Bitcoin while issuing CBDCs, but countries such as India, the United States (US), and many others have explored the possibility of launching CBDCs.
The finance minister of India Nirmala Sitaraman said that the country would roll out a CBDC soon. The government of India also clarified that the Reserve Bank of India (RBI) will not issue its cryptocurrencies.
RBI does not issue a cryptocurrency. Traditional paper currency is a legal tender and is issued by RBI in terms of provisions of the RBI Act, 1994. A digital version of traditional paper currency is called CBDC.” Minister of State (MoS) for Finance, Pankaj Chaudhary said this in a written reply at the parliament.
On 10 February, Economic Times also reported that the upcoming CBDC of the RBI may not use blockchain technologies.
US President Joe Biden also directed the Federal Bank to explore the possibility of issuing CBDCs. Joe Biden's executive order also raised the environmental concern of cryptocurrencies and called for the “responsible development, design, and implementation” of cryptocurrency.
Bitcoin is not the only currency that has to face such concerns for sure. The premium cryptocurrencies work on a system of mining called ‘proof-of-work (POW)’, that rewards every miner for being a part of the system. Thus it raises the overall electricity requirement. Cryptocurrencies with large followers that use this system could be under the radar of regulators.
As per the Cambridge Bitcoin Electricity Consumption Index, each year Bitcoin uses over 132 TWh of power which is higher than some small countries.
India and the US are not the only ones who are exploring the possibility of issuing CBDCs. China has also been piloting the use of digital yuan over the past 2 years. A task force was deployed by the People's Bank of China for digital yuan in 2014 and it conducted the first trial in 2020.
The oldest bank in the world The Swedish Riksbank also began its first CBDC project in 2017. It started running its pilot processes in 2020 and extended this period to February this year. The CBDC of Sweden is called e-krona. Small countries like the Bahamas also issued its CBDC, called the Sand Dollar.
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