Central Banks bash crypto again.

The Big Four central banks of the world — the U.S. Federal Reserve, European Central Bank (ECB), Bank of Japan (BOJ) and the Bank of England (BOE) — are arguably the most powerful institutions of the face of the earth.

The Big Four decide on interest rates impacting over $41 trillion in Gross Domestic Product. And they manipulate or influence more than $5 trillion in currency transactions per day.

With that kind of massive, highly centralized power to decide the fate of the world, it’s presumed they must know what they’re talking about. And that this authority must extend to cryptocurrencies … which they bash and trash:

  • Just this week, for example, the Basel Committee — composed of 60 central banks and backed by the Bank of International Settlements (BIS) — warned that the nascent crypto industry could “raise financial stability concerns and increase risks faced by banks.”
  • The head of the BIS, which is considered the “central bank of central banks,” says he’s “concerned” about the progress being made in crypto technology. He urges “young people” to “stop trying to create money.”
  • Other central bankers repeatedly declare that “there’s no point” in creating cryptocurrencies. After all, “Traditional money works just fine.”

Many Wall Street experts echo this view. Whenever the discussion turns to Distributed Ledger Technology, they rant, rave or just roll their eyes.

On the other extreme, crypto advocates still talk about Bitcoin or one of its peers soon rising up … replacing the U.S. dollar as the world’s reserve currency … and taking over the financial world.

My view: Both sides are half-right, half-wrong.

Let me offer an alternative scenario — one that’s more closely in alignment with the history of money, the present state of affairs and the most likely future of society.

First, let’s not forget that central banks:

  • Helped create the great housing bubble of the mid-2000s
  • Got caught flat-footed with the real estate bust and debt crisis of 2007-’08
  • Broke all rules of monetary policy by running their printing presses for eight years straight
  • And are now trapped with no exit from a new money bubble of their own creation.

This series of blunders doesn’t exactly imbue them with the holier-than-thou authority about alternative solutions like cryptocurrencies.

Second, let’s not ignore the fact that, while some central banks shun crypto, other central banks are jumping ahead with crypto R&D of their own.

The People’s Bank of China (PBOC) is busily filing patents to create what could be the first major centrally controlled, officially sanctioned version of cryptocurrency.

Governments from smaller nations like Sweden, Rwanda and even South Korea have reached out to development teams from promising projects such as Cardano, Stellar and IOTA. And these developers are happy to show them how to integrate Distributed Ledger Technology into their everyday operations.

It’s safe to say that the world’s most forward-looking central banks are beginning to see the handwriting on the wall.

Rather than bucking the tsunami of DLT innovation, they’re looking for a way to surf the wave.

Granted, their goals are very different from those of most crypto visionaries. Rather than a decentralized money of the people, by the people and for the people, what they want is primarily a technological upgrade for government-made money.

They want to retain all the control they currently have, but more efficiently and more securely.

Instead of chasing money-launderers and their cash-stuffed suitcases, these central bankers now dream of replacing cash with digital money that they can more closely control.

And to crack down on crypto money-launderers, hackers and spies, they dream of snuffing out the likes of Bitcoin with their own government-controlled digital currency.

How far they can go remains to be seen. But here’s the most likely scenario:

  1. Central banks make some headway with their own form of digital money.

I would not call it “cryptocurrency” per se, because it would lack the fundamental characteristics that define cryptocurrencies. It would not be decentralized. It would not be permissionless. It would not be censorship-resistant. In essence, it would just be digital fiat money.

Meanwhile …

  1. Free and open Distributed Ledger Technology also evolves, but in a different direction.

It does not have to replace fiat money to be successful! Instead, what’s more likely is that the two forms of digital money co-exist.

How? The answer lies in the recent
history of news media and publishing.

The disruption of news media and publishing in the internet age provides a faithful metaphor for what I see ahead.

Before the internet, traditional news organizations and publishers dominated the flow of information. They heavily influenced what reached the public, how and when.

Smaller, independent news organizations and publishers rarely grew beyond niche markets. Some individuals sought to build an audience with mom-and-pop radio stations, or by self-publishing books. But their competitive power was practically zero.

Then came the World Wide Web, and two things happened:

First, newspapers, magazines and all forms of books were forced to go digital or die. Broadcast media eventually followed. But virtually none of these led the way.

Instead, the leadership came from the upstarts who began their life cycle as internet platforms, Web broadcasters and social media.

The need arose to sort through the plethora of information coming from millions of sources. From that, Google was born.

Users wanted to share personal information with friends, family and the broader public. So the likes of Facebook, Twitter, WeChat and Line were born.

Online shopping, once laughed at as an impossible dream, surged by leaps and bounds. Amazon became the largest retailer in the world without opening a single store.

Within just a few short years, people all over the world — previously shut out from libraries and education, unable to make their voices heard, and with no access to most kinds of goods — saw new doors open that never existed before.

Today, the two worlds — traditional and digital — co-exist:

  • The large traditional players, who were both late and reluctant in their adoption of the new technology, alongside …
  • The smaller, innovative players, who led the charge and created their own vibrant industries in parallel.

Ultimately, the former is bound to shrivel and fall behind — like radio after the diffusion of TV.

But for several decades, the two should continue to co-exist.

This is also the pattern I foresee for the future of central banks and cryptocurrencies:

  • Central banks will mine cryptocurrency technology for parts. They will pick and choose the aspects they like. They will adapt and adopt strictly the pieces that fit their goal of retaining control. Whether their endeavor succeeds or not remains to be seen. But they will certainly try.

At the same time …

  • Cryptocurrency developers and sponsors will lead the way and create their own world, the Smart Economy of the future. Nonbank banks and money service organizations … decentralized currency exchanges … decentralized markets for stocks, bonds, commodities, real estate and collectibles … not to mention travel, lodging, jobs, dating and more.

Suddenly, within just a few years, people all over the world — previously unable to borrow, raise or transfer money … no hope of starting their own business … no way to buy or sell services globally — now see new avenues opening for the first time.

Ultimately, the old, traditional models may shrivel and fall behind. But for several decades, the two should co-exist.

I think this is the most likely scenario. But whether I’m mostly right or mostly wrong, the fact remains that open Distributed Ledger Technology is going to transform the world of finance and value transfer.

And it will do so in the same way that the internet transformed the world of media, publishing and the access to information.

No matter how long and how forcefully central banks seek to defend the status quo, the rapid advance of digital money, cryptocurrencies and DLT applications is unstoppable.

There’s also another problem that traditional banks facilitated: Trillions of dollars of money printing, allowing the world’s governments to amass obscene, unpayable debts with barely a second thought.




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Comments 10

Dale Perry March 14, 2019

You are spot on. Keep up the good articles……


Casey G. March 14, 2019

Nice Jaun, clear and concise.


Kevin March 14, 2019

Love your take on this subject Juan. It is exactly how I believe it will play out too. The central banks obviously will not let go easily the control they have enjoyed for so long. Time will tell where it all ends up.


James March 14, 2019

All valid points. The last one I have always found very interesting. What is the end scenario for the continuous money printing, where does this end. If something is to have value (in this case money) how can Governments just print tons of it at will whenever they feel the need to. Are there no repercussions for this?


John March 14, 2019

U nailed it my opinion…Great article! Some serious hypocrisy on the part of central banks!!!


Ken Dolbeare March 14, 2019

Excellent, context-conscious forecast of the messy, imprecise way that things work in the real world! What is missing is what happens when established power-holders decide what they want and use their power to bring it about — in the field of who is going to decide what is going to be known as money and who is going to control its availability and value, whose support is essential for making changes and making sure they are accepted? The US govt must play a role here, and thus we can identify some big players quickly, and next the bit players and initiators around them, the special-interest authorities and media and advocates that can mobilize constituencies concerned about these issues, etc. It is a huge number of powerful stakeholders that will ultimately be involved! And they care a lot about winning!


George Tahan March 14, 2019

Very succinctly put as always Juan. Keep your commentary flowing to those like myself who or old timer dinosaurs, but still can understand modern technology when explained as you do.
Thank you and other members of your team Juan.
GeVery succinctly put as always Juan. Keep your commentary flowing to those like myself who or old timer dinosaurs, but still can understand modern technology when explained as you do.
Thank you and other members of your team Juan.
George Tahan orge Tahan


Jan Dalmulder March 15, 2019

Great post Ithink this is what will and should happen!


Charles C Reed March 15, 2019

If it is making the Central Banks nervous it’s a good sign that Crypto is doing something right.


john March 19, 2019

Juan – – I think this is interesting insight and I agree – banks and large institutions will indeed try to use the best aspects of DLT/Blockchain to improve their businesses. Settlement/Custodial issues are an area where many large firms such as Fidelity are trying to use this technology. Healthcare companies, Insurance companies, real estate can all benefit immensely with savings passed on to end customers. Whether the mainstream large populations like the US and Europe adopt the use of crypto remains to be seen. Aside from very one-off use cases like the need to send a family member in China a certain amount of $ each month, the ease of use and speed of services here like Venmo, QuickPay with Zelle, PayPal, etc have made money transfer possible with the click of the “send” button. As Adam Ludwin stated in a Sept 26 ’17 Hashpower podcast with Patrick O’Shaughnessy – while the concept of unstoppable software is powerful, “For most people, especially in the US, that doesn’t strike them as ‘oh finally!… I was really sick and tired of Venmo censoring my Starbucks transactions…’ “