Weekly Top 3: August 13

Our weekly crypto newsletter is here! Learn more about the possible implications of CBDCs - both globally and in Australia alone, and the potential ETH PoW fork! You can visit our blog to find our previous editions in?German?or?English, or?download our app?and create an account to start tracking your whole crypto portfolio for free!

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CBDCs: Friend or Foe?

"The difference between a bad electronic cash system and well-developed digital cash will determine whether we will have a dictatorship or a real democracy”?– David Chaum, cryptography pioneer, 1996.

Several central banks plan to launch their own CBDCs (Central Bank Digital Currencies) in the next few years. CBDCs can take different forms, but the two main types are wholesale CBDCs, which are only issued to financial institutions, and retail CBDCs intended for the general public.?

With blockchain providing the technological framework, central banks are looking at how they can upgrade fiat money and map it onto a blockchain. But as one delves deeper into this new kind of fiat money, it becomes clear that central banks are attempting to build something that contradicts the fundamental values for which this technology was developed: decentralization, scarcity, and the freedom to transact.

While central banks argue that CBDCs have potential benefits, such as greater financial stability, increased security, efficiency in payment transactions, and increased automation of business processes, there are also apparent risks. First, CBDCs are not cryptocurrencies governed by distributed autonomous communities whose value is determined by the market. Instead, they are controlled by a centralized body that sets the game’s rules. Second, CBDCs will be available in an infinite quantity — in other words, central banks can (and very certainly will) issue more coins whenever they want. The risk of inflation rises with that quantitative easing, which naturally has its downsides.

Furthermore, introducing CBDCs means we will lose our ability to transact anonymously. Transactions may be tracked and spied on by knowing each citizen’s consumption pattern. By giving everyone an account at the Federal Reserve, governments could use big data to determine what consumers they need to stimulate at any given time.

Central banks are trying to devise solutions to problems generated by their own monetary policy. Still, these solutions are not necessary for the best interest of citizens and their freedom. On the contrary, if improperly implemented, they could only pave the way for even more scrutiny and societal control - the polar opposite of the visions of early crypto pioneers.

The CBDC Race Is Real: Enter Australia

Over 80% of central banks globally have either launched or started researching and piloting their own Central Bank Digital Currencies (CBDCs), according to the Bank for International Settlements (BIS) data. In recent news, the Reserve Bank of Australia announced collaboration on a year-long research project into possible “innovative use cases” for a CBDC. The Australian central bank had previously declared interest in e-AUD, but this is the first program to trial the digital currency in a closed-ring system.

Some countries are already ahead of the game. Nigeria and the Bahamas lead the way on retail CBDC projects, while Thailand and Hong Kong currently run the most advanced wholesale CBDC projects. Mainland China approaches the completion of large-scale e-CNY trials. In March 2022, the US government declared the research into a potential CBDC issuance “of the highest urgency.” Lagging far behind, the ECB’s Governing Council is expected to decide whether to back digital euro issuance in early 2023.

Ethereum: A Potential PoW Fork?

The looming ‘merge’ for Ethereum will be a landmark event as the network is set to transition from proof-of-work (PoW) to proof-of-stake (PoS). The current PoW structure rewards miners with new ether issuance in exchange for their assistance in keeping the Ethereum mainnet safe.?

However, the switch to proof-of-stake will drive out miners, so the news of some uniting to push for a potential fork is no surprise. This isn’t the first time this has occurred - a previous fork of ETH resulted in the creation of Ethereum Classic (ETC), which currently sits as a top 20 coin by market cap.?

So, is history about to repeat itself? In some ways, yes. While the fork isn’t confirmed, a familiar voice is driving the idea. That voice is one of prominent Ethereum miner Chandler Guo who was heavily involved in the Ethereum Classic fork in 2016. He took claimed on Twitter:?“I’ve forked Ethereum once, and I’ll do it again!”?

Guo claims his incentives lie in his belief that PoW is a superior model, although many are left skeptical over the idea of a PoW fork, as one already exists in the form of ETC. While some have labeled the fork as a ‘retail trap,’ others see it as a means to create wealth.

Another unanswered question is what will become of all the current ETH miners? Founder of the network Vitalik Buterin has encouraged them to move to ETC and claimed that most proponents for the fork are only there?“to make a quick buck.”