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Centralized Cryptocurrency: The Apple Is Poisoned? | Intangible News | technology



Who has not heard of Bitcoin yet?

Extremely newsworthy due to the amazing churches in its price, a long list of cryptocurrencies that have had mixed fortunes have blossomed in their wake. If we clear away the logical smoke behind cryptocurrencies and scammers, what is left at its core is a new form of money that is here to stay.

This new money is ethereal, untouchable, virtual. A little note somewhere in the cloud. And this causes no small problems for humans to imagine how something distributed (without being subject to centralized power) works under the well-known block chain (see BitCoin and Non-mediation, by Rafael Caballero).

The advantages of digital money are undeniable: the possibility of worldwide payment (without a central point of failure), with low commissions, fast and reliable without the need for third party intervention (the bank). Its non-contact is also beneficial in terms of weight, as it does not need to be moved from one place to another and does not deteriorate if the paper it represents gets wet or burns.

Blessed cipher! With its algorithms based on hard-to-reversible functions, it provides us with basic guarantees such as not changing messages through abstraction functions (hash) or digitally sign, non-repudiation, or encrypt messages for read-only by the chosen recipient. Without this foundation, digital money would not be possible.

It is so successful that it is both an opportunity and a threat to central banks around the world.

This is why the European Central Bank, the US Federal Reserve and their equivalent central banks in China and Japan, to name a few, are rushing to launch pilot programs for what would be their equivalent digital currency. Applying the well-known wisdom: “If you cannot defeat your enemy, join him” or rather, replace him with something alternative, this will lead to the emergence of the digital euro, digital dollar, etc. All such digital currencies issued by their respective central banks are generally called Central Bank Digital Currencies (CBDCs).

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These coins will begin to be issued with the same face value of the same name. And it will remain so until central banks decide that it no longer makes sense to hold physical money. For example, in Sweden, the value of cash in circulation has been devalued to 1% of GDP, so much so that they are considering abolishing cash entirely.

Technologies, in and of themselves, are neutral and can be used for the greater good or misused with the intent to harm, or to benefit a few.

In this sense, CBDCs have some chiaroscuro in terms of proposed design which is good to know.

In the first place, there is the fact that the digital currency is completely managed (centralized) by the central bank, which will have the power to issue a new currency or reduce it according to the suitability of countries and economic conditions. The infinite potential for issuing new currency determines that it will be inflationary and tend to lose value each time new units are “minted”. This approach contrasts with Bitcoin-type currencies, whose total issuance is limited to a certain initial amount, and thus conditions them not to lose value over time as long as supply is closed in advance and demand grows predictably.

Secondly, there is the right to privacy and anonymity. Traditional paper money provides privacy in the sense that no one can easily see who is spending where and when. This level of privacy is very good when we take care of people’s privacy: no one wants their penny-pinching financial information to be public or fall into the wrong hands, because it would open the door to extreme fragmentation as a consumer (we know what you consume, what you like, where and when, therefore, we can sell you better in an ad hoc way), or lead directly to abuse, or outright extortion if sensitive information falls into the wrong hands.

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But this level of privacy is also a barrier to detecting and stopping illegal activities, the underground economy, money laundering and terrorist financing.

Countries and central banks are betting heavily on increasing control over capital (as evidenced by the words of Christine Lagarde, President of the European Bank) even at the cost of sacrificing rights such as privacy and anonymity in Money 2.0, laying out the main reasons for illegal activities mentioned above. .

However, technical settlement solutions such as coin shuffling, anonymous signing, and zero-knowledge proof are available to keep the anonymity of the common man in day-to-day transactions while gaining full traceability of transactions from a given amount.

Third, centralized digital money will allow economic policies to be directly stimulated and directed by central banks. For example, in the face of a pandemic or natural disaster, money in the form of direct aid can quickly flow to those affected. But if misused, this same quality in the opposite direction allows the citizen’s capital to be confiscated without the intervention of third parties. The characteristic whose ethical and legal limits must be set.

It would be technically possible to issue programmable money with properties such as an expiration date to stimulate depreciation in certain segments at the right time, which owners would not like.

Setting limits and avoiding diminishing rights and freedoms is a political decision, not a technical one.

We will have to be very careful in explaining, disseminating and influencing our politicians so that they look after the common interest and not direct CBDCs so that they can turn into tools of social control.

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Pedro J Molina He holds a PhD in Computer Science from the Polytechnic University of Valencia and is the founder of the software company Metadev SL

Intangible Records It is a space for publishing computer science, coordinated by the academic association SISTYS (Sociedad de Ingeniería de Software y de Tecnologías de Desarrollo de Software). The intangible part is the intangible part of computer systems (that is, the software), and its history and development are related here. The authors are professors from Spanish universities, coordinated by Ricardo Peña Mare (Professor at the Complutense University of Madrid) and Macario Polo Osola (Professor at the University of Castilla-La Mancha).

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