Central Bank Digital Currencies (CBDCs) are one of the most important topics in the emergent blockchain technology space. Following the lead of the People’s Bank of China DC/EP initiative, CBDCs are garnering interest across the globe. In Europe, central banks such as the Banque de France and the Nederlandsche Bank are rapidly experimenting with digital currency implementation; nations with smaller GDPs in South America, Africa, and the Caribbean and Pacific Islands have seized the opportunity to get ahead of this tidal wave of oncoming technological change.
However, many experts will tell you that despite such promise and excitement, CBDCs are a long way away from realizing their true potential. As we see it, there are four main barriers to full-scale CBDC adoption.
Immature Technology foundation
Chief among the obstacles facing CBDCs are their unavoidable youth and novelty. Detractors argue that even Bitcoin and Ethereum are too young to be considered mature, despite their flawless track records. This is healthy skepticism, but it portends a long road ahead for CBDCs. No matter what advances come over the next decade — and such advances will come — there will likely be those who argue that these technologies are just too new.
Moreover, in addition to the dispositional skepticism, there is a practical barrier stemming from the newness of these technologies: the learning curve. Developer experience (as well as user experience) is unfamiliar in the early stages of any tech, and CBDCs are no exception. To navigate these technologies, users and developers need to acquire a specialized interest and skill set.
Clash with Currently Adopted Models
Similar to the unfamiliar developer skillset and early-stage front-end experience, the new language of CBDCs can be at odds with legacy systems. Distribute ledger systems can be complicated to operate in their own right, especially in the beginning. That challenge, compounded by the need to coexist for some time with a physical central banknote, puts a high degree of difficulty on immediate adoption.
Lack of Incentives
Legacy systems are hard to change not only for the technical challenges they present but also for certain political and economic reasons. The current currency system has put money largely into the hands of private banks and payment solutions companies. Because public money hsa no digital aspect, most people keep their money digital with a handful of major private banks. The business model of these banks depends on the widespread need for private custody, allowing the banks to acquire investment capital. Additionally, because our world is already going increasingly paperless, another cottage industry is made of remittances and settling digital payments among private creditors like Visa and Mastercard. This has led to a powerful barrier in the form of a political-economic merging that needs to be mediated and reconciled.
There is, further, the issue of investment in blockchain projects. To scale this kind of technology, blockchains will need a large influx of capital from the very parties that would now be disadvantaged by their adoption. Banks and payment systems are clearly eager to enter this space, which is an exciting bellwether; however, this will bring about lots of inner-industry conversations about the vision of a digitized future.
Lack of Coordinated Participation
Finally, by their nature, blockchains are community tools. They aim to facilitate collaboration among many parties in situations where trust and decision-making can get unruly or out-of-hand. This presents a paradigm shift in-and-of-itself. One of the most fundamental, less immediate barriers to adoption for CBDCs will be the spirit of economic and political goodwill and collaboration that blockchains thrive under. We at Cypherium know this change is coming, that we can overcome these many barriers, and that with technologies like ours, this new era of economic collaboration is already underway.