A Bitcoin Central Bank Is Not Going To Solve Bitcoin’s Problems
Tuur Demeester, a recognized cryptocurrency and Bitcoin (BTC) expert, explains why a Bitcoin central bank would not be a good idea for the digital currency and the crypto market. This debate comes after the crypto hack experienced by Binance, one of the largest and most popular digital currencies in the market, a few days ago. Let’s find out some insider input into the notion that bitcoin and central banks simply do not mix as it would defeat the nature of decentralization.
Is A Bitcoin Central Bank a Good Idea?
There are several cryptocurrency exchanges in the market and several custodians that are growing in size as the market expands. This is somehow a problem when analysing the risk in which they are involved and how difficult it would be to bail them out. As there is no “lender of last resort,” there is only one solution for these companies: a private insurance solution.
There are some exchanges that include BitMex and Binance that already have their own funds in case they will experience a hack or an attack. In some cases, companies such as Bitfinex and Tether (USDT) would start facing some problems for using the funds they have.
There are some Bitcoin supporters that believe that centralization is important and it could help Bitcoin expand and grow. These individuals think that a Bitcoin central bank would help exchanges and it would make them more stable. However, a central bank such as the federal reserve requires an army to defend it.
Demeester says hat a Bitcoin central bank would clearly have a systemic risk that is related to being hacked or facing a bank run. This would also increase the need for bureaucracy and financing. These Bitcoin banknotes created would be fractionally backed at the expense of savers, which is not something crypto enthusiasts would like to do.
Saifedean Ammous, economics professor, says that a central bank purchasing Bitcoin is not a very good idea:
“Central bankers believe in the ridiculous idea that government needs to manage the money supply, otherwise, they would be in a different line of business.”
According to Demeester, Bitcoin’s decentralized nature will be improved by multi-signature, “smart custody” and “collaborative custody.”
Bitcoin supporters and enthusiasts entered the market expecting to have a decentralized currency that would not be represented by a centralized authority. Thus, the idea of having a central bank for Bitcoin has no sense for Bitcoin’s ethos.
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