Introduction
Cryptocurrencies first emerged in 2009 when Bitcoin was introduced by a mysterious developer known by the pseudonym Satoshi Nakamoto. In the vast financial landscape of the 21st century, cryptocurrencies have secured a prominent place. These digital assets, based on blockchain technology and encryption, are revolutionizing how we perceive money, investments, and financial transactions.
From Bitcoin to Ethereum and beyond, the world of cryptocurrencies continues to expand, capturing the attention of investors, financial institutions, and governments worldwide. Today, major cryptocurrencies are considered both a digital reserve asset and an accepted medium of exchange by companies, financial institutions, and individuals.
Factors Driving the Surge in Cryptocurrency Adoption
Several factors are contributing to the increased adoption of cryptocurrencies for investment, purchasing goods and services, and even receiving payments.
First and foremost, it cannot be denied that greater awareness and accessibility have played a crucial role in the rise of cryptocurrency usage. Thanks to increased media visibility and the entry of new players into the market, cryptocurrencies are becoming more widely known to the public. Additionally, the ever-growing number of exchange platforms and wallets has made it easier for individuals to buy and manage their own cryptocurrencies, thus contributing to the growing number of people using them.
Another significant driver of this trend is the rise in inflation in various parts of the world. Some investors are seeking alternatives to traditional fiat currencies due to the potential loss of value over time due to inflation. Cryptocurrencies, especially those like Bitcoin that have a deflationary orientation, are increasingly seen as a safe haven against inflation and a choice to protect one’s wealth from the devaluation of traditional currencies.
Furthermore, the further development of new technologies, especially blockchain technology that underpins cryptocurrencies, has opened up new horizons for the use of these digital currencies. Decentralized finance (DeFi) offers users the opportunity to access a wide range of financial services, such as loans and investments, without the need for traditional intermediaries like banks or financial institutions. This is a tangible example. This innovation has transformed cryptocurrencies from a simple store of value and transfer tool to a more efficient and accessible means of accessing advanced financial services.
The Crypto Revolution: CBDCs vs. Stablecoins
Regarding the acceptance of cryptocurrencies by governments, two distinct paths are being followed: stablecoins and central bank digital currencies (CBDCs).
CBDCs constitute an official form of digital currency issued directly by central banks. National financial institutions support and regulate these currencies, designed to operate within the existing financial system. On the other hand, stablecoins are cryptocurrencies linked to an external value, such as a traditional currency or assets like gold. In recent years, there has been growing interest from governments in CBDCs. Cryptocurrencies offer greater control over monetary policy, the ability to combat tax evasion, and the promise of a more efficient financial system. Therefore, it appears that CBDCs will become the primary choice for governments looking to embrace the crypto revolution. In 2024, several interesting projects related to CBDCs and tokenization were announced by the Bank for International Settlements (BIS).
The Promissa Project is the first of these initiatives. BIS is developing a proof-of-concept (PoC) for a platform of tokenized digital promissory notes in collaboration with the Swiss National Bank and the World Bank. Promissory notes are still often traditional financial instruments that exist only on paper. It is anticipated that the Promissa project will achieve the goal of bringing these promissory notes into the digital world by early 2051.
Another interesting project is Project Aurum, which is jointly conducted by the BIS and the Hong Kong Monetary Authority (HKMA). The focus of this initiative is on the privacy of retail payments through CBDC. In 2022, the wholesale interbank system, e-wallet, and a retail CBDC prototype for Project Aurum were already completed by the HKMA.
In addition to these two main projects, the BIS is working on four other initiatives: Leap Project, Symbiosis Project, Hertha, and NGFS Data Directory 2.0. While not directly related to digital assets, these projects address crucial topics such as cross-border payment compliance and control of asset-backed stablecoins.
The BIS’s stance on CBDCs is clear: In 2023, it strongly supported CBDCs globally and opposed stablecoins. Agustín Carstens, the General Manager of the BIS, has called on central banks to lead digital innovation and has defined CBDCs as the “central element” of this leadership.
Conclusion
The fate of cryptocurrencies and CBDCs (Central Bank Digital Currencies) remains uncertain. Their long-term use is still unknown. Will they become everyday payment tools? Will they be reserved for internal banking operations? Or will they assume entirely new roles that we cannot currently imagine?
Regardless, digital transformation is altering how we perceive money and financial transactions. Cryptocurrencies and CBDCs represent just the initial steps in this direction, and their impact on our lives will be shaped by the choices we make in the near future.
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