Digital Coin and Other Alternative Currencies
As the world moves closer to a cashless society, digital coins and other alternative currencies have gained in popularity. Critics say cryptocurrencies empower criminals and rogue states, stoke inequality, suffer from wild price swings, and consume massive amounts of energy in mining and transaction fees. But proponents point to their potential to disrupt financial systems and democratize money creation.
Digital Coin is an exploration of current and emerging forms of digital money, examining their implications for finance, monetary policy, international capital flows, and the organization of societies. Authored by Cornell’s Eswar Prasad, the book traces the history of crypto assets, from their beginnings as fringe interests among tech evangelists to today’s trillion dollar valuations and widespread use. It considers how cryptocurrencies can change the way we think about and transact with money, as well as the challenges they face in becoming a mainstream form of payment.
Bitcoin is the most famous and valuable of all cryptocurrencies. It was launched in 2009 by an unknown person or group under the pseudonym Satoshi Nakamoto. The currency is decentralized, encrypted, and based on the blockchain, which records all transactions in a public ledger. The system was designed so that there is no central authority, server, or storage location — users store their own coins on their computers and interact peer-to-peer. This design was meant to create an autonomous, global, digital money.
After the success of Bitcoin, other alternative cryptocurrencies started to appear. These are known as altcoins and generally aim to improve upon the Bitcoin design by offering greater speed, anonymity, or other features. Many of these have failed, but others are gaining in value and have become widely accepted as alternative ways to make payments online.
Some major central banks have begun to look at issuing their own digital currencies. A new Atlantic Council paper by Bank for International Settlements chief Agustin Carstens and coauthors suggests that responsible design of a central bank digital currency can harness the technological innovations offered by crypto while addressing privacy and cybersecurity risks.
The paper outlines possible design scenarios for a CBDC and discusses the need for a data protection by design approach. It also explores how a CBDC could support cross-border payments and the future of the financial supply chain.
A central bank digital currency (CBDC) is a form of electronic money that has been issued and regulated by a national or state-level financial authority, similar to how paper currencies are issued and regulated. The Atlantic Council’s GeoEconomics Center is tracking the development of CBDCs, including China’s digital yuan which is expected to go live in 2023. The paper argues that a CBDC can make it easier to implement monetary and fiscal policy by reducing the cost of settling payments, reduce the risk of cyberattacks, and enable more efficient financial intermediation.