CBDCs: An existential threat for crypto?

Central bank Digital currencies, or CBDCs, are coming. 114 countries around the world are currently working on a digital, more efficient version of fiat money. 11 projects have already launched. Critics consider CBDCs to be the nemesis of crypto. They see it as a dystopian technology that will allow governments to have total control over people's finances.

CBDCs are definitely our future, and I think that people should be afraid.

But how much of a threat do CBDCs pose to our financial freedom and democratic societies? And is there any chance they will ever replace cryptocurrencies? We try to find out by sitting down with Naomi Brockwell, a tech journalist and privacy advocate. I'm Giovanni. In this show, we challenge the ideas that are shaping the world of crypto. In each episode, we assess a crypto narrative, a macroeconomic outlook, or a potential disruptive technology. Only the most solid ideas will make it to the other side. If you enjoy our show, please consider leaving a like to the video and subscribing to our channel. So a lot of people tend to still conflate the concept of cryptocurrencies and CBDCs, or central bank digital currencies. Can you point out the main differences between these two concepts?

Sure. I mean, it's. It can get pretty blurry. So I understand why some people get confused by it all and it really depends how it's implemented is the big differentiator. For me, cryptocurrency, what it stands for is the decentralization of money. It is a decentralized ledger that basically enables uncensorable payments, least censorship resistant payments. It gives people back control of their money. For me, central bank digital currencies represent the opposite. It represents the central bank, you know, controlling the money supply. People talk about it in terms of like, programmable money. So in terms of like the practical state of money right now, I don't think central bank digital currencies are going to be that different to the controlled money supply we currently have. But there is room for even more, like, nefarious activity, I think, from governments.

Yeah, we have seen that these technologies are already being implemented in a number of countries. For example, CBDCS has already launched in the Bahamas, in Nigeria, in the eastern Caribbean. We also saw that major economies like the US and China are already exploring these technologies. China is already testing it on its territory. But now I would like to ask you, what are the specific applications of CBDCs that make you worry the most?

Well, I think it goes back to that idea of programmable Money. It's the idea that I might have savings in my bank account that the government could just delete if I don't spend it fast enough. You know, if I send money to the wrong person, all of that is controlled. If I make bad financial choices, I could get penalized. Right. I think we can look to countries like China and their social credit system to see some of the ways that this control is implemented where, you know, if you get a bad credit score, suddenly you don't get access to certain schools or different hotels, or you can't ride the fast train if you're going across the country. And, and it's really is just a way for the government to control people's lives in different areas of their lives.

Okay, but now we're talking about China. So it's an authoritarian regime and it's of course natural that they are applying CBDCs for authoritarian purposes. But what about Western countries, Western democracies like the US, like Europe? Don't you see the possibility that CBDCs deployed in this context can reflect the values of democracy and freedom that our societies are largely based on?

I think whether it's possible and whether it's likely are going to be very different questions. If we look at how these so called Western democracies are treating the current financial system, I can, I expect that we'll see something very similar with CBDCs. And our current financial system is completely surveilled. You cannot open a bank account, you cannot move money electronically without having all kinds of IDs requested of you, all kinds of personal information collected. It is just not possible to use these payment rails in an anonymous way, in a private way at all. It used to be, but suddenly I think we're like frogs in boiling water. We just kind of get used to, to these surveillance tools ramping up and we don't really notice when we suddenly get to a stage where everything is surveilled. I think that these governments pay a lot of lip service to privacy and these ideals of freedom. I just don't buy it. And I don't see from their actions that they're standing by these convictions. We have people like Assange, you know, been detained for over 10 years now for journalism. Yet we talk about free speech, we talk about all the freedoms that we're enabling here. Like yes, I'm not going to say that we're as bad as China. Absolutely not. I look at what's going on China and my heart breaks for the people there and how surveilled they are. But I don't think western so called democracies are that far behind.

Now let's talk about the upsides or the potential upsides of CBDCs. So this technology is aimed at offering seamless, fast, safe transactions to people. And they combine basically the speed of cryptocurrencies with the, let's say, stability in value that offer fiat currencies also they will be accepted everywhere within the country that accepts them. So no cryptocurrency at the moment, at least that I'm aware of, can offer these upsides. So how can crypto compete with this technology in the long run?

I mean, there's a lot to unpack there. Let's start off by you talking about these instant transactions that will happen. I think for the average person, they're not going to care. They're not going to see the difference between what they currently can do with their credit card and with PayPal and what have not and what CBDCs will offer. Far as the average user is concerned, they're making instantaneous transactions already. They don't understand that the financial system operates on credit and they're, you know, it takes several days, sometimes longer for money to clear from their point of view. The money left their bank account, they bought the, you know, chocolate milk at the grocery store and they're golden. So I think for most people they're just not going to see the, you know, the benefits of this instantaneous transactions. The next thing is I get like, I don't think that competing for those things is the value proposition of cryptocurrency people. I mean, we had, we had the upper hand in the early days. When I first started making videos about cryptocurrency around like 2013, you know, the electronic tools that we had in the traditional financial system were pretty bad. And so crypto did provide this hope of a better system that was faster and it was cheaper and all of this stuff. But honestly, electronic payments have gotten way better in traditional finance since then. And crypto, it can absolutely not compete. Right now for me, the value proposition of crypto is not competing on those grounds. It's having control of your own money, it's being your own bank. It is having the ability to make a digital payment with an element of privacy. For me, you know, I like the idea of using money where every transaction isn't monitored and tracked and where it's not all kept in some database and some permanent record attached to my real identity, you know, in some say government data center.

I was wondering, why can't these two technologies coexist. So cryptocurrencies and CBDCs, people that care about privacy can use cryptocurrencies, while people that just care about convenience, then they can just use CBDCs. Don't you see this as a potential working scenario?

Yeah, that's absolutely what's going to happen. I do see a world where you're going to have this, this normal market, you're going to have this gray market. I think the gray market is going to increasingly grow, it is going to get larger and larger where a lot of day to day transactions just move over to that crypto market. Because you know, if it's a choice between this surveillance system and this non surveillance system, I think people don't like surveillance. But then again people do like convenience. And so there is going to still remain this controlled market. I think that's fine for me. It's not about forcing people to use this decentralized system. It's about saying you have a choice and you can make up your own mind according to your own value system.

So this year the crypto industry has been shaken by a number of crashes. Like big companies that have crashed, they went bankrupt. We saw FTX lately collapsing. So trust in the ecosystem has been heavily undermined. How do you think the turmoil of this year has impacted the development of CBDCs if in any way?

Right. So as they say, never let a good crisis go to waste. And I think that's exactly what you're seeing here. And so I think that a lot of politicians are going to use this momentum of all of these people getting hurt in the crypto space to try to push forward CBDCs, to try to push for more forward, more financial control and regulations. That's absolutely going to be the outcome of this. But I hope that for all of the people who do understand this technology, that they're looking at this and they're realizing what the future is. I mean the future is decentralization where you don't need to rely on these centralized entities, where you don't need to trust a CEO if you can read the code. And I think once people, once their perception shifts and they realize that they can have more faith in their money being there if you can see proof of reserves and it's all just determined by the code, which is completely transparent. I mean that's a world I want to live in. I want to live in that transparent world where people can get this information for themselves and we're not dealing with, you know, shadow, shadowy power brokers. Who are paying politicians behind closed doors.

So despite the criticism of privacy advocates like you, like other crypto enthusiasts, it seems that CBDC's initiatives are being pushed forward by governments all around the world. They don't seem they're going to stop. And so what do you think? Are CBDCs inevitable? And if so, what should civil society and crypto enthusiasts and just regular people do to prepare for the advent of this technology?

They're absolutely coming. It is inevitable. CBDCs are definitely our future. And I think that people should be afraid. People should be very afraid of this very controlled financial system that is even more controlled than the current financial system. I think that if people want to prepare themselves, find ways to disengage from the system already. I mean, where I live, there's a robust community of people who, you know, make everyday purchases in cryptocurrency. People often think that, oh, well, this is something that I keep in my bank account and never spend. It's like, well, I know a lot of people who no longer keep US Dollars in their bank account. All in on crypto. They're earning crypto, they're spending crypto, they're buying their groceries with crypto. It's completely possible, no matter where you are in the world right now, to live entirely on crypto if you want to. I understand why a lot of people don't want to because it's volatile. You know, we haven't figured that one out yet. But if you want to opt out of a surveillance system, you absolutely can. Right now, maybe you have an UN KYC'd collection of cryptocurrency. It's not illegal to do that. You can purchase cryptocurrency off friends. So maybe start to acquire unknown cryptocurrency that is not tied to you or your IP address or any of your personal identifiers like your email or whatever. Just start to build that. I would also say, even if you're not using crypto every day, for every single thing you do, familiarize yourself with the tools out there that would enable you to do this.

Yeah, definitely. I think the people watching our conversation today got some valuable information on the importance of, of financial independence, financial autonomy and freedom. So, yeah, thanks a lot, Naomi, for being on our show. I look forward to see you again.

Thank you so much for chatting with me. I really enjoyed it.