The increasing use of cryptocurrency as a payment method has resulted in the growth of a digital ecosystem.Governments are lagging behind, struggling to come up with effective public policy measures to restrict its usage.
The Bank of Canada has been actively considering the use of a digital currency to combat the perceived danger of bitcoin. The bank would be able to monitor and regulate the transactions within the network since the national digital currency would be centralised.
Cryptocurrency is a decentralised digital currency that conducts financial transactions and protects against counterfeiting and fraud using encryption. Cryptocurrency is an alternative to sovereign currencies, such as the Canadian dollar, which are issued by governments.
My PhD dissertation examines how states attempt to regulate cryptocurrencies, a disruptive technology that poses a danger to sovereignty and is difficult to manage unilaterally.
The adoption of cryptocurrencies has far-reaching ramifications for both the global economy and the government’s role. Cryptocurrency, as a decentralised, peer-to-peer payment network that allows people to communicate information without the need for a mediator, circumvents central banks’ control over money supply.
No single third party has control over the transactions and data kept on the distributed ledger, thanks to blockchain technology. Result, the use of bitcoin as a payment method has the potential to jeopardise the government’s capacity to track monetary movement.
As a result, governments have taken steps to regulate cryptocurrencies, describing them as a direct threat to national security and the global financial system’s stability in some circumstances.
This decision to label bitcoin a threat runs counter to statements made by Mark Carney, the former governor of the Bank of Canada and current governor of the Bank of England. Carney questioned the purpose of the world’s reserve currency, claiming that a digital substitute may take its place.
Digital currency issued by the federal government
According to a survey commissioned by the Bank of Canada, Canadians are becoming more aware of cryptocurrencies such as Bitcoin, with an estimated 5% of the population owning these digital assets.
Because of their centralised governance architecture, government-owned digital currencies would most likely run on a private blockchain, lowering transparency. Private blockchains aim to reap the benefits of blockchain technology without relinquishing complete control. Because all of the data is housed in a single system, this centralised method increases the risk of a single point of failure.
Storing massive amounts of data in a centralised location hasn’t always worked out, and data breaches and leaks are common. It also requires less hacking than a public decentralised network, so data is easier to get.
Traditional cryptocurrencies are decentralised, with transactions validated and regulated by consensus. To validate a transaction, a majority of the network’s nodes must agree that it occurred.
According to the Bank of Canada’s research, A digital currency would allow them to collect more data on Canadian customers.. A warrant is now required to look into an individual’s buying history.
The idea of a new digital currency collecting more information on Canadians raises severe privacy concerns. While using cash to keep your transactions private is still the only option, using cryptocurrency leaves a comprehensive trail.
It hopes to impose a new level of state supervision on the digital economy.
Controlling the flow of funds
Other cryptocurrencies allow users to create aliases, but the Bank of Canada’s digital currency may not.
A national digital currency that collects consumer data has major privacy issues, and could completely replace physical money. Institutional surveillance of digital currency spending habits raises worries about kids’ surveillance, undocumented citizens’ surveillance, and our right to privacy.
As countries prepare to experiment with and establish their own national digital currencies, they will face centralisation issues.
A central bank’s access to data about Canadians benefits privileged bankers but not the rest of society. As a result, the Bank of Canada is testing private distributed ledger technology.
A centralised cryptocurrency would entail unprecedented state surveillance. We must consider whether central banks should create new digital currencies.
What the Bank of Canada doesn’t realise is that technology has always favoured transparency. The Bank of Canada is no exception when it comes to digital currency.
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