This week in crypto. Jan 17-23: Central Banks, CBDCs and surveillance state, FLUF World initiatives and more...
Central Banks, CBDCs and the surveillance state
Crypto markets are sliding, speculators are bleeding and crypto haters reactivate on all social networks.
What a better timing for the Central Bankers to start another tour of crypto hostilities and self-promotion, making sure they do not forget to mention CBDCs – a digital version of fiat money that is managed directly by the Central Bank.
Central Banks on the offensive
This week the Russian Central Bank proposed to ban financial institutions from facilitation crypto operations, arguing that it “undermines financial stability” and of course “due to the criminal activity”. This was hardly surprising, as its Chief has vehemently opposed crypto on numerous occasions. The proposal was supported by the Federal Security Service (FSB), who do not like that crypto is used by Russians to donate to the opposition or independent media.
This is but a proposal though, and in order to be enacted it must pass the Parliament and, most importantly, get the signature of the one man whose opinions truly matter in Russia – President Putin. Will he align with the Central Bank and FSB, or decide that crypto is too valuable a tool to challenge the dollar as a reserve currency, or to circumvent sanctions and be used in international trade – this is yet to see.
Another ardent speech – this time not condemning crypto, but promoting banks – was delivered this week by Augustin Carstens, General Manager of BIS (Bank of International Settlement), also know as the bank of central banks:
“The soul of money belongs neither to a big tech nor to an anonymous ledger. The soul of money is trust. So the question becomes: which institution is best placed to generate trust? I will argue that Central Banks have been and continue to be the institutions best placed to provide trust in the digital age. This is also the best way to ensure an efficient and inclusive financial system to the benefit of all."
The fact that the General Manager of the Bank of Central Banks thinks that Central Banks are the best is not surprising, but together with other speeches Mr Carstens has given over the last couple of years, the picture is somewhat alarming.
“For example, with cash we don’t know who is using a $100 bill today, we don’t know who is using a $1000 peso bill today. A key difference with the CBDC is Central Bank will have absolute control on the rules and regulations that will determine the use of that expression of Central Bank liability [= fiat] and also we will have the technology to enforce that. Those two issues are extremely important and that makes a huge difference in respect to what cash is.”
So what are these CBDCs that will give the CB absolute control over each person’s savings and expenses?
CBDC vs crypto
CBDC, or Central Bank Digital Currency, is often introduced to the general public as an “alternative” to crypto. One Indonesian Central Banker even went as far as saying that “a CBDC would be one of the tools to fight crypto”.
So far, however, a CBDC may have only one point in common with crypto : it could be transferred fast. That’s all.
Most CBDCs’ designs include a centrally controlled ledger with digital wallets where people store their funds, which is basically a (more) digital version of a fiat currency, subject to the same flaws.
A CBDC is not independent, it is not immutable, it is not accessible by everyone everywhere and it is most certainly not governed by its users – these qualities are still exclusive to crypto.
Moreover, a CBDC can be a serious threat to the people’s privacy: CB will have a centralized source of information on all people’s expenses, and that, on the scale of a country, is equivalent to Big Brother. Not to mention a great tool for seizing the funds of any kind of opposition (or any person a CB official might not like 😏).
CBDCs in the world
China was among the first to launch its CBDC, in test mode since the beginning of 2020.
The digital yuan is stored on a two-layered ledger controlled by the People Bank of China and allowing offline payments where the network is weak. It uses a two-tier delivery system: the PBoC distributes the e-yuan to banks, which must deposit the same amount of yuan within the PBoC.
In 2021 China executed the concurrence, banning crypto and all related activities (being an authoritarian state, it did not bother with long anti-crypto campaigns). CBDC test has been expanded to 10 cities + the site of the upcoming Olympics, and people incited to use the e-yuan via government lotteries. The result? The PBoC announced this week that digital yuan hit 261 million users.
The same week that Russian Central Bank decided to escalate its anti-crypto activities, it started testing digital rouble, the Russian CBDC. Like the Chinese one, it was designed to give most control to the CB, while keeping commercial banks busy: people and businesses’ funds will be kept in a digital wallet controlled by the CB, while commercial banks will help set up these wallets and conduct operations with them.
Nigeria launched its CBDC last October. A month after its release eNaira wallet was downloaded almost 600k times, with the pace slowing significantly after the first 10 days. Like the others, it has a two-tier structure, but the core protocol was not created from scratch: it uses Hyperledger, a private blockchain solution, allowing the CB to control the transfers.
As Russia, Nigeria has one of the biggest crypto adoption rates in the world, and the Nigerian Central Bank unsurprisingly banned financial institutions from facilitating crypto-related transactions last February. To no avail: most crypto transactions in Nigeria now happen on P2P platforms like Paxful (the platform registers an equivalent of $284M traded yearly in the country).
Some good news for the libertarians came from Switzerland: the country’s Central Bank decided that CBDC’s “risks outweigh the benefits”. This week its governing board member Andrea Maechler expressed his concerns over the risks carried by the private sector that would be taken on by the CB, increased risks of bank runs and the privacy issue.
Is it surprising that China, Russia and Nigeria are so into CBDCs ? We don’t think so. They are authoritarian countries that want to control every citizen’s life, and what better way to do it than with money.
Central Banks already have a huge impact on societies: they decide how much money is printed, to whom this money is given… Offering them control over personal accounts of citizens will be another step to a dystopian future – and we believe it is to be avoided at all cost.
NFTs and Metaverse
The FLUF world continues expanding, while giving back to the people.
This NFT project initially featuring fluffy rabbits, then fluffy spiders called Thingies and then - fluffy Party Bears, has recently released a collection of Burrows all these creatures can live in, including a limited edition of studios created with Snoop Dogg.
7 of the rarest Snoop Dogg Burrows were auctioned off for over 1M NZD ($670k), with the profits going to the Auckland City Mission to help people in need of housing (Non-Fungible Lab, the company behind the FLUFs, is based in New Zealand).
Another FLUF’s meaningful initiative, this time in partnership with hardware wallet manufacturer Ledger, is aiming at educating Web3 users on safety and security: a content competition has been launched today.
FLUFs are a great example of developing a community wth storytelling and partnerships, all while building the foundations for a whole metaverse-ready world. And it also helps people.
Markets
Bitcoin
Bitcoin price has lost another 18% this week, sliding to $35k level.
Among the macro economic fears linked to the Fed slowing money printing (we covered this in our previous newsletter) and the attacks from the regulators, the market sentiment is gloomy.
However, people holding Bitcoin for some time know that markets move in cycles and while Bitcoin price has lost 50%, or even 80% many times in the past, the value of Bitcoin itself ( adoption + hashrate) has only increased. This is also the case now: Bitcoin difficulty hit its all-time high this week, making it even more secure and proving the miners’ resolve (read more here).
An on-chain analysis also shows a repeating trend: this sell-off comes mainly from the short-term holders (paper hands), who panic and sell at a loss to the long-term holders (who have been hodling for 12-18 month (read more here). This story has been repeating itself many times in Bitcoin existence, and in our opinion will repeat many times more, until the market matures.
On a side note, El Salvador continued hoarding bitcoins, adding 410 more coins to its Fund.
Ethereum
Ethereum dip was even more impressive that Bitcoin’s: it lost 30% of its price this week, landing at $2’350.
Quote of the week
Some guys are selling really cheap 🤷🏻
Nayib Bukele, President of El Salvador, on buying more bitcoins