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by Emma Newbery | Published on Oct. 24, 2021
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The well-known whistleblower is concerned about putting the state at the center of crypto transactions.
Edward Snowden, the former government contractor who blew the whistle on NSA domestic surveillance activities, has spoken out against the creation of a U.S. Central Bank Digital Currency (CBDC) or govcoin.
The Federal Reserve is due to release a discussion paper in the coming weeks or months on whether the U.S. should create its own govcoin. Fed Chair Jerome Powell told a press conference at the end of September the big concern is whether any potential benefits outweigh the risks or downsides.
CBDCs -- also known as govcoins -- are cryptocurrencies that are issued and backed by central banks. Most cryptocurrencies are decentralized, that's the magic of blockchain technology. One of Bitcoin's (BTC) attractions when it launched over a decade ago was that it cut the middleman (banks and governments) out of financial transactions.
In contrast, CBDCs are centralized. The idea is that they offer the benefits of blockchain-based coins, such as fast and cheap transactions, but without the volatility and perceived insecurity of a normal crypto.
China is already in the final stages of piloting its digital yuan. And many other countries -- including the U.S. -- are weighing the benefits of launching their own.
Snowden is a champion of individual freedom and he believes passionately in the importance of protecting people from overly intrusive state control. As such, it's hardly surprising that he objects to govcoins.
He tweeted: "A CBDC is a perversion of cryptocurrency, or at least the founding principles and protocols of it -- a cryptofascist currency, expressly designed to deny you the basic ownership of your money by installing the State at the center of every transaction."
Let's break down his concerns in more detail. First, as we touched on above, decentralization is part of cryptocurrency's DNA. Decentralization removes intermediaries and makes us less reliant on third parties like banks or governments. In a lengthy blog post, Snowden explains that the "very technology was primarily created in order to correct the centralization that now threatens it."
The second part of his argument is about state control. Snowden argues this is not simply a digital version of the dollar you hold in your wallet. The government can't control what you do with the dollar in your wallet, but it could (in theory) influence how you spend a CBDC dollar.
He illustrates this with a scenario involving a man who is diagnosed with diabetes and told to cut his sugar intake. Taken to an extreme, Snowden argues CBDCs could actually allow the state to stop that man using his money to buy sweets or other products that would be harmful to his health.
Whether crypto investors agree with Snowden's doomsday prophecies, there are undoubtedly privacy concerns about CBDCs. But the global trend toward govcoins could impact cryptocurrency prices and is worth watching.
Cryptocurrencies come in many different forms and perform various functions. For example, Ethereum (ETH) is a platform on which applications and other cryptocurrencies can be built, but other currencies like Litecoin (LTC), Stellar Lumens (XLM), or Bitcoin Cash (BCH) operate in the digital payment sector.
CBDCs would almost certainly cause digital payment cryptos to struggle. After all, many people use cryptocurrency because it is faster and cheaper -- not because they believe in the founding principles of crypto. A safer, less volatile option might prove popular.
Stablecoins would likely be the hardest hit. These cryptocurrencies reduce volatility by pegging their value to real world commodities like the U.S. dollar or gold. They are popular with traders as they offer an easy way to move in and out of a particular crypto without having to convert investments into fiat (traditional) currencies. The government is already promising much stricter stablecoin regulation, and govcoins may force them out completely.
Finally, we shouldn't forget that China -- the country leading the way in CBDCs right now -- has banned cryptocurrencies completely. The U.S. says there are no plans to follow suit and ban crypto, but policies can change.
There are many things we don't know about CBDCs -- not least whether the U.S. will pursue its own govcoin at all. Privacy campaigners like Snowden are already highlighting the dangers of increased government involvement in your money matters.
But it is still early days for crypto, and even if the government does go ahead with plans for a digital dollar, a lot hinges on how it is designed and implemented.
There are hundreds of platforms around the world that are waiting to give you access to thousands of cryptocurrencies. And to find the one that's right for you, you'll need to decide what features that matter most to you.
To help you get started, our independent experts have sifted through the options to bring you some of our best cryptocurrency exchanges for 2021. Check out the list here and get started on your crypto journey, today.
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Emma Newbery owns Bitcoin, Ethereum, and Stellar Lumens.
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