UK To Consider Digital Pound: Reject It At All Costs

Recently, HM Treasury and Bank of England announced their plans to potentially introduce a digital pound that would, in theory, help improve monetary transactions and provide stability against cryptocurrencies. However, a centralised digital currency is the last thing that a free society needs, and in this article, we will explore what challenges cryptocurrencies have faced, what the digital pound plans are, and why they should be rejected at all costs. 

What challenges have cryptocurrencies faced?

It didn’t seem that long ago when the media turned its attention to cryptocurrencies after they saw massive increases in value during the 2020 – 2021 period. At the same time, numerous financial commentators made all kinds of predictions, ranging from a continuing increase in value to an absolute market crash, and these wild predictions fuelled speculation investments from both individuals and large hedge funds, as well as numerous government investigations to cryptocurrency exchanges. 

In reality, the value of cryptocurrencies took a massive hit, but the market certainly didn’t collapse to nothing. Instead, it is more likely that the large drive in cryptocurrency value resulted from the growing media attention around cryptocurrencies, and many tried to make short-term gains thinking that the value of cryptocurrencies could only “go to the moon”. It also didn’t help when notable figures such as Elon Musk made public announcements of their intention to purchase cryptocurrencies, only to shortly pull out of the market, which saw a massive drop in market confidence. 

But before we can understand what challenges cryptocurrencies face, we first need to understand what a cryptocurrency is. In the simplest terms possible, a cryptocurrency is a digital monetary system that utilises encryption to create a secure and immutable ledger of transactions. Ideally, this ledger is entirely public, and when a new transaction is requested between two parties, the entire public has to check that transaction and confirm it is possible. 

This public nature of the ledger, and processing transactions, makes such a cryptocurrency decentralised, as no one server is responsible for tracking and maintaining the ledger. The use of a decentralised system prevents anyone from making false transactions or stealing funds, as the rest of the public would disagree, as their own ledgers would not match up. Encryption helps provide a mechanism of authorisation, such that transferring funds from one wallet to another requires a secret key only known to the wallet owner, and the use of public key exchange allows the rest of the public to verify that a transaction request is valid.

So now that we have a basic understanding of what cryptocurrencies are, what challenges are they faced with? The first and most apparent challenge faced is volatility. As cryptocurrencies are still in their infancy, very few shops and services accept cryptocurrencies as a form of payment. When combined with the low number of crypto holders, the result is an extremely volatile market, making it hard to rely on for storing value. Instead, cryptocurrencies are better suited for immediate money transfers that bypass international payment schemes such as SWIFT and CHAPS.

The second challenge faced with cryptocurrencies is that making a new digital currency is extremely easy. This presents a major issue to new crypto users as it is very easy to create crypto scams. For example, it is perfectly possible to create a new bitcoin chain, present it as authentic to unsuspecting buyers, offer large “discounts”, and then take the money. Those fake bitcoins would not be usable on the existing bitcoin network, thus rendering them useless. New legitimate cryptocurrencies are made to try and solve issues with existing cryptos (such as Litecoin and Polka Dot), but with more than 1,000 coins available worldwide, only the top 10 are practical. 

The third challenge is that cryptocurrencies fall outside government control, as they are not suspectable to inflation or regulation. As such, some governments have actively worked to either try and introduce new legislation to control them or, worse, outright ban them. However, government regulation is actually a benefit to cryptocurrencies as it helps to legitimise their monetary status. 

Overall, cryptocurrencies are rarely used in real-world transactions, they are highly volatile, and their legal status can sometimes be in the grey.

HM Treasury and Bank of England announce potential plans for digital pound

Recognising the potential benefit of digital currencies, HM Treasury and the Bank of England recently announced plans to explore the potential of a digital pound, how it could be implanted, and what features it would offer citizens. Currently, the announcement is nothing more than an intention, with no promise to introduce a digital pound. However, a job posting for a digital currency expert has already been posted, demonstrating that this announcement carries weight. 

In the announcement, the HM Treasury and Bank of England stated that a digital pound would be exchangeable for cash and bank deposits, would allow for everyday transactions to be taken (such as rent, shopping, and bills), and could either be introduced either as a digital pound or as a central bank digital currency. 

It is believed that a digital pound would help to secure monetary transactions by providing traceability, will not change in value with respect to physical cash, and utilise digital identities to protect against financial crime. The new currency would also be accessible to all, and that the currency would not incorporate restrictions.

Why should a digital pound be rejected at all costs?

While the Bank of England is currently responsible for minting new cash and controlling inflation rates, it has no power whatsoever to hand out cash, control who spends it or even deal with day-to-day transactions. Instead, it is the role of private banks to monitor transactions, ensure that transactions are authorised, and protect individual accounts from theft and other financial crimes. Even then, personal responsibility is still required, as banks will not refund users from scams if key details were given, such as pin numbers, credit card numbers, and security codes. Thus, the power of current monetary systems mostly lies with citizens.

However, the idea of a government-controlled digital currency is by far one of the most frighting concepts ever conceived. The first big red flag with the proposed currency is that it is a centralised system, meaning that the ledger and the control of transactions are entirely internal to the Bank of England. As such, a single ransomware attack, bad actor, or moment of insanity could be all that is needed to disrupt the internal ledger. While the ledger could be made publicly available, only the central bank can authorise the validity of the ledger, as it would always have the final say.

The second red flag from the proposed plan is that the ledger would be tied to digital identities, which would instantly make all transactions fully traceable with no privacy whatsoever. Thus, the Bank of England would be able to see who has purchased what from where at all times. While cryptocurrencies are not entirely anonymous, their use of randomly generated wallet addresses does help to provide a degree of anonymity.

The third red flag is that while the proposal states that the currency wouldn’t have software controls and limits, it is perfectly plausible for the government to do just this. The first version of the currency wouldn’t have these controls, but as the public becomes more comfortable with the idea of digital currencies and digital IDs, the government would slowly introduce new legislation “in the interest of the public”. Suddenly, those who are considered undesirable may find that their digital currencies cannot be spent, and this could even lead to the government making spending decisions for individuals. This is already happening in China with their social credit system, digital IDs, and digital currency, which gives the Chinese government absolute power in everyday life.

Overall, the proposed digital currency is just a mechanism for control that the UK government is trying to introduce and provides no benefits whatsoever. Existing cash and banking methods are already suitable for everyday activities, existing cryptocurrencies deliver the benefits of smart contracts and automation, and the only action that governments need to take is to introduce regulation over cryptocurrencies, letting the public decide how to develop and use them.