Central bank digital currencies (CBDCs) seem inevitable, and some concerns regarding privacy and control mechanisms exist. What Bitcoin inventor Dr. Craig Wright suggests is that CBDCs running on the BSV blockchain could benefit both the central banks and the end users of the state bank-backed digital currencies.
At the recent The Bitcoin Masterclasses #7, Dr. Wright revealed interesting details of a BSV blockchain-based CBDC.
BSV blockchain and customized CBDC solutions
“All we’re doing is creating a system that the government themselves chooses to run that sits on top of Bitcoin and effectively acts as a completely separate system. Except (…) why it’s not completely separate, it doesn’t have to worry about double-spending, it doesn’t have to worry about time stamping—Bitcoin does those,” Dr. Wright said.
What Bitcoin does not do, though is provide identity. As explained in the white paper, identity in Bitcoin is firewalled—as in: there is no identity simply by using Bitcoin for transactions. The identity must come from outside of Bitcoin, off-chain, so to speak. Dr. Wright stated in his presentation that we need governments to provide identity controls for a functional CBDC running on the BSV blockchain.
In 2008, Dr. Wright published a white paper on electronic contracting—he understood the legal requirements of digital signatures and identity back in 2008.
“What we’re really looking at is getting our Bitcoin transaction, putting the normal Bitcoin stuff, and then creating a Layer-2 protocol, i.e., having a structured, standard template that will run inside Bitcoin. This then allows each individual central bank to set their own terms and conditions,” Dr. Wright said.
The technicalities—how nChain enables smooth CBDCs
Dr. Wright emphasized the importance of versioning in Bitcoin, as it allows nodes to handle CBDC transactions differently based on the rules set by each central bank. This flexibility enables multiple countries to have their own CBDCs and different implementations without causing conflicts on the Bitcoin network.
In terms of implementation, Dr. Wright suggested that CBDC transactions could be managed through push data blobs containing binary data, with Bitcoin validating and processing the transactions accordingly. This would allow for efficient and secure CBDC transactions within the Bitcoin network. At nChain, Dr. Wright is already working on such solutions with his team.
Dr. Wright discussed the potential benefits of making the CBDC development process open source, enabling public scrutiny and auditing of the code. He argued that transparency and openness would ensure the system is continuously improved and secure.
What if CBDCs get out of hand, as in a dystopian monetary control?
The inventor of Bitcoin is not naive and knows that CBDCs could turn into a nightmare. However, if a CBDC is built on the BSV blockchain, Dr. Wright points out that people have a choice.
If the rules of a CBDC system turn against the end users, Bitcoin will still be available. The satoshis are there to be used in case anything goes wrong with the CBDC itself. Imagine having a CBDC wallet and another wallet that allows you to swap your CBDC into BSV blockchain sats or vice versa.
And not only that. Dr. Wright stated in his presentation that a single satoshi will always be cheaper to use than a single unit of the CBDC running on the BSV blockchain. So aside from all political worries regarding a CBDC system, there is competition between the CBDC and the satoshis—as both are electronic cash.
“Why is it never going to be as cheap as a native Bitcoin transaction? It’s going to be bigger than a native Bitcoin transaction for a start, because it’s going to be a native Bitcoin transaction—and stuff! (…) a very simple Bitcoin transaction will always be cheaper, which means the lowest of micropayments will end up in Bitcoin anyway,” Dr. Wright stated.
Furthermore, Dr. Wright pointed out that if the crowd disagrees with certain CBDC specifications, then the public shall vote differently. This is not about technology, but about politics.
Bank for International Settlements and the unified ledger
The Bank for International Settlements (BIS) seems to grasp the idea. In the BIS Annual Report 2023, it says on page 86:
The blueprint envisages these elements being brought together in a new type of financial market infrastructure (FMI) – a “unified ledger.” The full benefits of tokenisation could be harnessed in a unified ledger due to the settlement finality that comes from central bank money residing in the same venue as other claims.
A unified ledger? Remember what the BSV blockchain is—it is such a unified ledger.
Concerning the BIS, Dr. Wright stated in his article, The false lure of anonymity, that Bitcoin could minimize the role of the BIS:
Bitcoin allows even banks to remove settlement functions and to distribute tokenised electronic cash in a manner that doesn’t require something such as the BIS or Bank for International Settlements.
Do not confuse this statement with “crypto influencers” yelling Bitcoin would be against banks or governments. It is not. However, the BIS is not a commercial bank and could even be made obsolete once the private and central banking system utilizes a unified ledger such as the BSV blockchain.
In other words: if the world wants to, then BSV blockchain is the new BIS.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
Watch: Blockchain provides perfect foundation for CBDC
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