Privacy-Conscious CBDCs: A Skeptic's View on Potential Pitfalls and Hidden Agendas
Summary:
This article discusses the potential drawbacks of privacy-focused central bank digital currencies (CBDCs). Skeptics argue that even with good intentions, CBDCs could become intrusive surveillance tools like past government programs. The article cites examples of past failings in privacy protection, especially in financial securities and shares concerns voiced by prominent figures in the technology and finance industries. The piece suggests that the push for CBDCs may be driven more by governmental desire to control monetary systems and by profit interests of the organizations and companies developing these digital currencies, rather than tangible benefits they could provide.
There's a growing discussion surrounding the idea of "privacy-aware" central bank digital currencies (CBDCs). Advocates argue that if CBDCs are executed properly, they won't necessarily lead to enhanced governmental surveillance and call for a comprehensive "CBDC bill of rights" to ensure this. However, the concept, though appealing, might be too optimistic.
Critics express skepticism, given the U.S. government's track record of diminishing the existing Bill of Rights, noting its failure in safeguarding financial privacy. Historical instances which serve as examples include the erosion of privacy through the third-party doctrine and the failure to adjust reporting thresholds to keep up with inflation.
An interesting case can be found in the 2013 leak by Edward Snowden, a former National Security Agency (NSA) contractor. The leak revealed how domestic surveillance had significantly increased post the September 11 attacks. Notably, within this larger narrative, is the story of Thomas A. Drake, another former NSA official turned whistleblower.
Drake proposed a system which could ensure Americans' privacy during domestic surveillance. While it was a comprehensive surveillance program, Drake's system planned to anonymize any identifying information. If suspicious information was detected, a warrant could be obtained to de-anonymize it. Unfortunately, Drake's privacy-ensuring solution was rejected by the NSA. It later turned out that Drake's proposed program was indeed implemented, but without the privacy protection feature. As a result, it morphed into one of the most extensive surveillance systems in U.S. history.
This case should serve as a stern warning for those promoting CBDCs. Even with good intentions, proposed designs for these digital currencies could easily veer off course. The history of financial surveillance has repeatedly shown that subtle changes can expand rapidly. Chris Meserole from the Brookings Institution shares these concerns and worries that it would only take a major crisis for the government to repurpose CBDC surveillance capabilities in the name of security or criminal justice.
A similar cautionary message comes from Ethereum cofounder Vitalik Buterin, who suspected that CBDCs might lose their transparency, verifiability, and privacy over time. He expressed concern that CBDCs could essentially magnify conventional banking systems' problems and reduce privacy, thus enabling unobstructed surveillance by corporations and the government.
Such fears are underpinned by central bankers worldwide admitting that complete privacy won't be achievable with CBCDs. With significant risks and hardly any benefits to show, it's possibly better to steer clear of CBDCs. They offer little towards financial inclusion, are unlikely to enhance payment speeds or advance monetary policy, and will do little to secure the dollar's global reserve currency status.
Notably, the main driver behind government interests in CBDCs might be their potential to consolidate monetary control, especially in the face of rising cryptocurrency adoption. Simultaneously, organizations advocating CBDCs and technology companies developing them will continue to push for their adoption, given the profits they stand to gain.
In conclusion, the promise of a privacy-conscious CBDC is starting to look like a deceptive promise. Nicholas Anthony's new book, "Digital Currency or Digital Control? Decoding CBDC and the Future of Money," explores these issues more thoroughly. Anthony is a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives and is also an occasional contributor to Cointelegraph. Please note, the views expressed are solely his and don't necessarily represent those of Cointelegraph. This article doesn't contain legal or investment advice.
Published At
6/25/2024 1:22:55 AM
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