TL;DR:
- Citi analysts suggest that central bank digital currencies (CBDCs) and tokenization of real-world assets will drive mass adoption of crypto in the future.
- CBDCs are pegged to fiat currencies, exist digitally and are controlled by the issuing currency’s central bank. Citi suggests that there will be $5 trillion circulating in the economy in CBDCs “by the end of this decade.”
- Tokenization could “grow by a factor of 80x in private markets and reach up to almost $4 trillion in value by 2030,” according to Citi.
Citi analysts recently suggested that CBDCs and tokenization of real-world assets will drive mass adoption of crypto, leading to billions of users and trillions of dollars in value. The benefits of CBDCs include interoperable payment instruments, ease of accounting and reporting, and regulatory clarity. However, there are also clear risks, including potential threats to user privacy and disintermediation of commercial banks.
The adoption of cryptocurrencies has been steadily growing over the years, with the rise of central bank digital currencies (CBDCs) and tokenization of real-world assets being the next big drivers of this mass adoption. This is according to Citi’s latest report, “Money, Tokens, and Games: Blockchain’s Next Billion Users and Trillions in Value,” which suggests that blockchain technology will soon see “billions of users and trillions of dollars in value.”
CBDCs are an alternative to cryptocurrencies like Bitcoin or Ethereum. Based on current trials, CBDCs would be pegged to a fiat currency and exist digitally, controlled by the issuing currency’s central bank. During a panel event at the Citi Digital Money Symposium, the bank’s future of finance lead Ronit Ghose suggested that there will be $5 trillion circulating in the economy in CBDCs “by the end of this decade.”
Tokenization, or bringing traditional financial assets onto the blockchain, is another key driver behind mass crypto adoption, according to Citi. The report estimates that tokenization could “grow by a factor of 80x in private markets and reach up to almost $4 trillion in value by 2030.” Tokenization could also disintermediate financial markets, composability with cryptocurrencies, and ultimately offer a “shared ‘golden-source’ infrastructure” for different asset classes to exist on the same network.
However, there are clear roadblocks on the way to this “golden” standard. Regulatory clarity is perhaps the largest, with few jurisdictions offering a clear framework for adopting traditional assets on-chain. There may also be pushback from those in the financial industry, as the disintermediation such technologies offer could render their jobs obsolete. Nonetheless, it is clear that the adoption of CBDCs and tokenization of real-world assets is set to be the next big driver of mass adoption of cryptocurrencies.
CBDCs are a form of tokenized fiat currency that operates on a blockchain with a public ledger, allowing the government access to critical consumer data. It is true CBDCs could potentially revolutionize the economy, providing benefits to millions of people, including ease of use, ease of update, and regulatory clarity. CBDCs could also benefit the corporate world and expand the legitimacy of the blockchain network, impacting other blockchain-based applications like NFTs, decentralized finances, and DAO.
However, CBDCs are not without challenges, including concerns that they are not in line with the decentralized nature of crypto. CBDCs could also result in inflation risks and potential government exploitation of consumer interests. The Nigerian launch of the digital Naira has already shown how governments can use CBDCs to control the economy without consumer interest.
CBDCs could also impact cryptocurrencies, as governments may introduce regulations that limit their usage or directly compete with them. The direct competition could limit the growth of cryptos and the development of new projects. Therefore, only time will tell whether CBDCs are good or bad for crypto.
In conclusion, the rise of CBDCs is likely to impact the crypto industry, with potential benefits and challenges for both CBDCs and cryptocurrencies. While CBDCs offer advantages, they also pose potential risks to the decentralization and freedom that crypto seeks to offer. Governments and financial institutions must consider the balance between innovation, competition, and regulation to ensure that the future of finance benefits everyone.
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