Two sides of every coin
As the story goes, there are always two sides of every coin. In this case, one coin (Bitcoin – https://bitcoin.org/en/bitcoin-paper) which is backed by miners to secure a network with mathematical computational power and the other sets of digital currencies that are powered by centralised intermediaries (both governments https://www.digfingroup.com/digital-rmb/) and private companies (Libra – https://libra.org/en-US/).
So who will win the war of digital currencies?
The purist’s belief system
No one person, state or body should have control of your financial assets. No intermediaries should be imposing material fees and charges to secure your personal wealth. No state or government should be able to devalue your assets. No government should ever have the power to take what is rightfully yours.
The central bankers (dis)beliefs
No digital currency can be an actual currency without state backing. Monetary control is a matter of sovereignty and any threat to that control should be eliminated. That digital assets are small and right now don’t pose a threat to systemic risk, however, they are monitoring as assets like Bitcoin grow in acceptance over time.
Your data, your privacy
As digital banks in Hong Kong race to what they perceive as a gold mine of digital assets, do you really want your digital footprint being tracked and held by these technology monopolies? Do you really want your data being sold to create value for those that warehouse the data?
Do you think that a Digital RMB would really be anonymous as this article by AMTD at Digfin suggest? (https://www.digfingroup.com/digital-rmb/)
Whilst digital have many so-called potential benefits of efficiency, one should wonder whether the trade-off for your data is worth if?
With Bitcoin your data is not totally anonymised, however, being on a public open ledger the information is openly available for all parties to benefit from. The boom of decentralised digital currencies flies deep in the face centralised government or public entity backed solutions.
So who will win the war on digital?
At this stage, I am excited to see how Bitcoin performs during the next financial crisis.
With a business like the involvement of the likes of Fidelity Digital Assets involvement with what I understand to be over 105 employees solely focussed on Bitcoin. If one of the worlds most successful asset managers are deep into this pioneering space I can only see one winner in the digital currency war.
Digital representations, what’s the point?
The other state-backed digital assets for me act more like a digital representation of the current analogue world and I would say that it is unnecessary to create a digital representation that can not be custodised without the need for a central intermediary. Why bother? They want your data…..
I believe Bitcoin will continue to dominate all digital currencies and I believe this will be reflected in an 80/20 balance of Pareto’s principal over time. (https://en.wikipedia.org/wiki/Pareto_principle).
I do believe that each digital currency will succeed in its own unique way, but the only true safe haven coin is Bitcoin. The state-backed projects lack a material benefit to acting as a safe haven asset, and Libra will struggle to get past regulators and much of the benefits of a virtual currency that Bitcoin brings will be lost.
In the next post, I will take a closer look at the financial giants that are working deep into Bitcoin and why Bitcoin will remain the dominant force above all the other digital currencies.