How Key CBDC Plan Threatens to Betray Crypto's Founding Principles

Bank of International Settlements' Plan to Improve 'Process Efficiency' May Do the Opposite

By: Alex Shipp Loading...

How Key CBDC Plan Threatens to Betray Crypto's Founding Principles

There was a lot of fanfare when the Bank of International Settlements (BIS) announced the launch of Project Icebreaker in September. A primer for Central Bank Digital Currency (CBDC) implementation, it laid out how the central banks of Israel, Norway, and Sweden would use blockchain technology to address friction in the cross-border payment system and utilize CBDCs in remittances.

Although the proposal was structurally sound, Project Icebreaker is emblematic of exactly where and how CBDCs and their system architects diverge from cryptocurrency’s founding principles and sorely miss the mark in their fiduciary responsibility to serve the constituents of their respective nations.

Cryptocurrency: The Big Picture We Can’t Afford to Forget

Plain and simple, Bitcoin and the landscape of cryptocurrency was conceived to produce systems for owning and transferring wealth in decentralized fashion — that is, without entrusting immense powers to a central entity.

Based in Basel, Switzerland, the Bank of International Settlements influences central bank policy worldwide. Since time immemorial, central parties have exploited both national economies and societies at large via wealth extraction and censorship. Cryptocurrency’s basic precepts are cut and dry: decentralized consensus mechanisms, trustless environments for applications, community-driven governance, and empirical protections for individual privacy.

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Yet the BIS’s latest rendition of monetary innovation focuses on enhancing process efficiency — specifically by reducing costs for remittances and other cross-border transactions between nations.

Despite employing many of the basic components of cryptocurrencies — namely, distributed ledgers and digitally native assets — Project Icebreaker sidesteps the fundamental principles and open economic paradigm for which they were conceived.

Solve the Big Problems First, or Never

Here’s the issue: The harsh reality governments and supranational financial authorities are yet to digest, let alone confront, is that the internet provides more process efficiency than the human race will ever need.

In the 21st century, we don’t have an efficiency problem — we have a distribution problem, and a severe and egregious one at that.

But in spite of the wealth of content authored and endorsed daily by cryptocurrency’s brightest pioneering minds, authorities around the world remain fixated on the age-old approach of inching along in the process efficiency problem. Radical, systemic change is simply unpalatable to those in positions of power.

Sure, interoperable CBDC systems have the potential to cut remittance costs for migrants sending funds overseas. But the savings are a temporary respite for those getting the short end of the stick.

Surviving paycheck-to-paycheck becomes a little easier for the time being, but the impending stranglehold of authoritarian regimes remains intact, along with all the familiar built-in features: frozen bank accounts, forced bail-ins, and wealth-depleting inflation.

The Consequences of Failing to Keep Course

Those that founded and propagated Bitcoin and its Open Source peers committed to building groundbreaking systems built on core principles: censorship-resistance, individual liberty, and decentralization.

But that isn’t enough. Should the crypto space fail to stay on course, the monetary and financial plight of humankind will regress to the centralized paradigm from which it has just emerged, only this time, its flaws will be amplified by several orders of magnitude.

The Imminent Dangers of CBDCs

In his most recent appearance on Offshift Fireside Chats in July 2022, Edward Snowden, the legendary whistleblower and freedom advocate, affirmed his characterization of CBDCs as “a perversion of cryptocurrency…a cryptofascist currency, [and] an evil twin entered into the ledger on opposite day.”

Having become famous for exposing the U.S. National Security Agency’s domestic mass surveillance program in 2013, Snowden’s eye for authoritarian overreach has not dulled.

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Snowden’s commentary points to a harrowing inevitability: that a centralized monetary system equipped with the capacities to flexibly program, comprehensively surveil, and discretely censor every economic agent, transaction, and currency unit presents what is perhaps the greatest threat to individual liberty the human race has yet encountered.

One thing is for certain: as the wealth of the world migrates to the virtual realm, there is no going back to our systems of old. Alone and together, we must take responsibility for the future we want for ourselves and our progeny: one grounded in empirical freedom and privacy, or one founded on authoritarian controls. The ball is in our court – at least, until it isn’t.

Alex Shipp is the chief strategy officer at Offshift.