The inevitable onslaught of central bank digital currencies (CBDCs) won’t harm Bitcoin’s value proposition – in fact, it will give it a serious shot in the arm.
That’s the key takeaway from Grayscale Investments’ May report on how the rollout of CBDC’s will affect the status of Bitcoin.
CBDCs are digital currencies centrally issued and controlled by central banks. In this respect, they are the very antithesis of Bitcoin and stand opposed to the ideals of cryptocurrency as a whole.
However, according to Grayscale, the launch of CBDCs will only help set the stage for Bitcoin’s own arrival on the global scene.
Grayscale: What CBDCs Are Not
The Grayscale report states that any similarities CBDCs might share with Bitcoin on the surface are wholly superficial. In effect, CBDCs are merely digital versions of fiat currencies – and can be manipulated even easier. The report states:
“CBDCs may censor non-ordained addresses, and central banks will continue to control the monetary policy. On the surface it seems like a digital dollar might displace Bitcoin’s growth because they are both digital, but it actually fails to address these principal concerns.”
Any CBDC would naturally be open to the threat of constant and unaccountable inflation and would track the identities and transactions of everyone who used it. Grayscale suggests that CBDCs and Bitcoin don’t compete for the same territory – but that the former could still help the latter in the long run.
How CBDCs Will Help Bitcoin
The report suggests that CBDCs may already be “accentuating Bitcoin’s role in the global digital economy.” That’s partly because successful implementation of CBDCs will naturally force people and institutions to become familiar with a digital payment infrastructure.
“Whether or not CBDCs are successfully introduced, they already strengthen the case for non-sovereign digital currencies, like Bitcoin, by forcing institutions to consider adopting digital currency infrastructure, while also educating users on digital bearer assets and the characteristics of good money.”
This would, in turn, provide users with an educational base from which they could begin to notice the differences between Bitcoin and CBDCs. The fact that they are both digital is entirely irrelevant.
“Bitcoin is special not because it is digital, but because Bitcoin is a scarce, uncompromising, apolitical currency that is open for anyone to use.”
In summary, Grayscale – which manages more than $3.7 billion worth of digital assets for its investors – don’t see CBDCs as a threat to Bitcoin. Rather, they will act as training wheels for the real thing.