Digital coins backed by governments have become a trend now. Top government officials from different countries have publicly directed research toward the area to see whether there is viability.
The Chancellor of the Exchequer in the UK publicly announced the intention of the UK to be the center of financial innovation and directed the Bank of England to carry out feasibility studies on the opportunities digital assets might create for London and the whole of the UK.
Many other countries in the world carry similar ambitions. China, one of the economic behemoths in the world, is already showing convincing efforts toward the realization of a digital currency soon. Day trading crypto in platforms like PrimeXBT makes decentralized digital assets a hot cake. However, the security accorded by the governments will help elevate the position of government-backed digital assets.
Why Are Government-Backed Digital Currencies Becoming A Hot Topic
When setting the lenses on the UK’s economy and magnifying the viability of government-backed digital assets, the City of London stands to benefit.
According to a former finance minister, the city is a center for financial innovation and needs to be at the forefront of future innovations that touch on finance and associated technology to stay ahead. The same is true for other financial hubs in the world.
The description by the chancellor concerning mainstream digital coins relates to the innovative infrastructure that runs over a trillion dollars worth of digital assets circulating globally with no central point of management as in other traditional forms of finance.
Blockchain and other digital technologies it supports are innovative areas that can shift entire financial ecosystems like PrimeXBT’s if given the right support. The support here is the massive resources from central governments and big banks all over the world.
What is the Impact of Digital Government-Backed Currencies On Ordinary Digital Coins?
Digital coins already in the blockchain and circulating globally have a special position in the world, which developed in the last decade. Early adoption of the coins gave them a good head start, which required a lot of effort from central banks to cover.
However, the positions taken by governments towards the creation of new digital coins can have damaging effects on the growth of some crypto coins and the blockchain that helps in transfer and verification.
Central banks will not use the blockchain in its current form, though it is the best bet to run their new digital coins. The banks will create a similar system, but with a door to track all transactions made in real time. The technology adopted by the use of blockchain to support digital currencies is a peer-to-peer protocol, going against the centralized nature of what governments and other financial institutions stand for.
What Sparked Central Bank-Backed Digital Coins?
The idea of government-backed digital coins started after the success of decentralized ledgers that helped transfer Bitcoins and other digital coins. However, recent actions in China to limit the development of cryptocurrencies spell doom for the development of future technologies that rely on the blockchain.
When government-backed digital coins come to effect in China where there is an aggressive drive to develop one already. The demand for other digital coins might drop while people adopt the government-backed ones in significant numbers.
Will Crypto Continue To Exist In The Current Form?
Bitcoin and other crypto coins became popular because of their decentralized nature and ability to day-trade them in PrimeXBT and other trading platforms. People got excited because no government could dictate the direction of the crypto industry—it is an industry built on trust among people holding the assets.
While pure trust does not make crypto a good commodity to hold, especially at a time of crisis, the hold the government will have on Central bank digital currencies might spark the continued growth and development of decentralized digital assets.
Bottom Line
Digital-backed cryptocurrencies driven by central banks might become a reality soon. However, that will not spell the end of the secondary crypto market that houses Bitcoins and other crypto coins.
While the risk of new legislation to tame the secondary markets remains, the market might flourish because ordinary people want to keep control of their assets.
