The establishment of Central Bank Digital Currencies (CBDCs) could increase demand for privacy coins this year
Governments developing CBDCs could be a popular trend in 2021 as they try to fight corruption and money laundering with digital currencies. The CBDCs would be controlled by the governments, which would make it easier for regulators to track the movement of the funds. It will also give regulators the ability to track down the actors behind illegal activities.
The increase in the CBDC branch can be attributed to one main factor – the increase in Bitcoin value over the past year. Several governments around the world still view cryptocurrencies like Bitcoin as a tool to facilitate illegal activity. Hence, developing CBDCs would help the government combat the excesses of the cryptocurrency sector.
Additionally, the coronavirus pandemic has exposed the shortcomings of paper money as the need for cashless transactions has grown at an unprecedented rate over the past year. Governments and their central banks will develop CBDCs to facilitate the transition from paper money to digital currencies.
Despite the positive effects of CBDCs in combating money laundering and other financial crimes, there are concerns about the development of digital currencies issued by central banks. The CBDCs will allow governments to have more control over users and their financial activities. Many people believe that governments will use this power to increase financial discrimination. Others fear that anonymity and freedom will be jeopardized by the development of CBDCs.
The government is likely to impose stricter know-your-customer (KYC) requirements for a transfer. This could result in more user data being put at the mercy of financial and technology companies. For example, suppose technology giants like Apple and Google start processing payments for individuals. In this case, hackers will find it easier to collect user data thanks to the electronic transaction history available on such platforms.
CBDCs could encourage the adoption of privacy coins
The rise of CBDCs could encourage the adoption of privacy coins. Privacy coins would be the best digital alternative for people who want to keep their anonymity in financial transactions. Several countries such as South Korea, Russia and the United States are making increasing efforts to suppress the use of privacy coins. Some regulators have even ordered cryptocurrency exchanges to remove privacy tokens from their platforms, making it harder to access privacy-focused cryptocurrencies.
The general belief is that privacy tokens are used to facilitate illegal transactions. However, privacy coins like Monero offer numerous benefits such as private transactions and ensuring the security of financial data.
These features could help convince more people to switch to coins for privacy as they seek financial anonymity in the face of government scrutiny.