Who is the biggest beneficiary of digital currencies? Grayscale Research: CBDCs will lay the foundation for the popularization of Bitcoin

The concept of Central Bank Digital Currencies (CBDC) has been increasingly discussed in recent years. With the global spread of the novel coronavirus, physical cash and coins have been seen as potential factors for virus transmission, even leading to proposals for distributing relief funds in digital dollars in the United States.

The inevitable transformation of traditional fiat currencies into digital form may improve financial inclusivity. However, CBDCs, controlled and issued by central banks, are fundamentally different from the original intention of Bitcoin. Therefore, the question arises: will the widespread adoption of CBDCs ultimately benefit or disadvantage Bitcoin?

Cryptocurrency investment firm Grayscale Investments released a report in May titled "Central Bank Digital Currencies Highlight Bitcoin's Value Proposition," emphasizing how the introduction of CBDCs will impact the current status of Bitcoin.

Grayscale believes that Bitcoin's uniqueness lies not in being a digital currency, but in its characteristics as a currency that is uncompromising, apolitical, and accessible to anyone. The introduction of CBDCs is seen as a step towards bringing Bitcoin into the global spotlight and laying the groundwork for its broader adoption.

Differences Between Stablecoins and Fiat Currency

A report points out that since the emergence of Bitcoin, numerous digital assets have entered the market, with one of the innovations being stablecoins. The chart below highlights the growing demand for USD stablecoins, with the total supply recently surpassing $10 billion. Compared to traditional banks, stablecoins provide 24/7 real-time settlement services.

So far, there has been strong demand for stablecoins in the market because they can operate outside the existing financial system, facilitate cross-border transfers, and be pegged to assets like the US dollar.

Grayscale points out that the success of stablecoins has indirectly contributed to the development of projects like Libra, triggering strong reactions from authorities worldwide and seemingly accelerating the development of Central Bank Digital Currencies (CBDCs). The Bank for International Settlements (BIS) has also once again urged the evaluation of the feasibility of CBDCs this April.

CBDCs and Bitcoin: Almost Opposite Positions

Grayscale believes that Bitcoin's characteristics lie in its censorship resistance and decentralization, allowing users to transact and store value freely without worrying about funds being frozen or stolen. Conversely, CBDCs are likely to be the opposite; they are simply digital versions of fiat currency, with each transaction being screened, funds subject to potential freezing, and providing governments with unprecedented monitoring capabilities. The report states:

CBDCs may scrutinize non-designated addresses, while central banks continue to control monetary policies. On the surface, digital dollars may seem to replace Bitcoin's growth as they are both digital, but in reality, they cannot address these issues. CBDCs will naturally continue to face unexplained inflation and track the identity and transactions of each user.

How Can CBDCs Foster Bitcoin?

The report indicates that CBDCs will "enhance the value proposition of Bitcoin and other digital currencies." The widespread adoption of CBDCs will naturally compel the public and institutions to become familiar with digital payment infrastructure. On the other hand, the public will also discover the differences between Bitcoin and CBDCs.

The invention of Bitcoin was intended to allow the public to transact and store value without having to trust central banks to implement monetary policy or rely on third parties to hold and transfer funds. Overall, Grayscale does not see CBDCs as a threat to Bitcoin; instead, it will serve as a bridge for the public to further understand Bitcoin.