Why Central Banks Won’t Bring Down Bitcoin
Why Central Banks Won’t Bring Down Bitcoin By Alex Kimani – Safe Haven
It’s question that the bitcoin and crypto community has pondered over long and hard: “Could the world’s central banks create their own ‘safe’ and centralized cryptocurrencies to replace the current decentralized networks?”
It’s not just an idle musing, either. Digital payments are expected to hit a record 726 billion transactions by 2020 as digital rapidly establishes itself as rival to cash due to convenience and low transaction costs.
These legacy banks would no doubt love to be at the helm of digital payments the same way they have dominated the fiat currency market.
And now the European Union has sounded the alarm to the bitcoin and crypto community by declaring that decentralized currencies could find themselves in serious trouble if central banks decide to launch their own cryptocurrencies.
A report on fintech competition commissioned by Econ, an organization that oversees decisions by the ECB (European Central Bank), warns: “The arrival of permissioned cryptocurrencies promoted by banks, even by central banks, will reshape the current competition level in the cryptocurrency market, broadening the number of competitors.”
The report theorizes that banks could use their power in traditional banking to limit competition from other cryptocurrencies through predatory pricing schemes and pre-emptive acquisitions. Banks would not only price out bitcoin and other crypto but also institute denial of service, including to exchange wallets by users.
The report also points out that bitcoin’s vulnerability stems from how the mining industry is structured, with only five mining pools controlling nearly 80 percent of bitcoin mining.
A Contrarian View
It’s perfectly understandable why the ECB would be worried about cryptos. Europe is the world’s leading crypto hub with 42 percent of bitcoin wallet supply, 37 percent of leading players and 33 percent of payments. Despite its outsized role, the region controls only 13 percent of mining activity.