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Are Central Digital Currencies a threat to Bitcoin?

Photo of: Joseph Stone
by Joseph Stone

Binance CEO Changpeng Zhao is not too concerned about the impact of central bank digital currencies on cryptocurrencies like Bitcoin. The CBDCs in preparation are still too restrictive compared to the freedom allowed by Bitcoin.

China wanted to be the first state to launch its digital central bank currency. However, the Bahamas beat them to it with the Sand Dollar. But with fewer than 400,000 residents, the CBDC does not have the scale of an e-yuan.

But competition is not only between states. Aren’t these official electronic currencies also potential rivals for existing cryptocurrencies such as Bitcoin or Ethereum?

Asked about this by Fortune, the boss of the world’s largest exchange, Binance, is serene. On the contrary, Changpeng Zhao believes that any blockchain or digital currency benefits the entire crypto industry.

Why is this? Quite simply,” he stresses, “because it legitimizes digital goods and helps to raise awareness among a wider part of the population. Moreover, for technical reasons, the CBDCs do not seem to offer as many possibilities.

The head of Binance notes that the central bank currencies at the heart of the experiments are proving to be rather restrictive. This is only a first step, he concedes. Some of these limitations may diminish as the CBDCs evolve.

But they will be far from competing in terms of freedom with cryptocurrencies such as Bitcoin, insists Changpeng Zhao. And the explanation is simple: CBDCs are highly centralized and tightly controlled by states.

“If a government pushes another cryptocurrency that is even more open, freer, with fewer restrictions than Bitcoin, and that is faster and cheaper to use, then that would threaten Bitcoin. But it’s good for the industry, it’s just something better than Bitcoin, and it would replace it,” imagines the CEO.

Such a scenario is still science fiction today. Besides, the states don’t seem to want to rush into issuing a CBDC. The threat of the Stablecoin Libra is less pressing. In Europe, experiments are still continuing within the ECB.

The United States refuses to enter into a race with China. China, where the launch of a stablecoin backed by the yuan by Binance is clearly out of the question. Its leader points out that the consequent restrictions on capital transfers to China would be an obstacle to this.