According to National Geographic, “An adaptation is any heritable trait that helps an organism, such as a plant or animal, survive and reproduce in its environment.” Eucalyptus trees survive the wildfires of the Australian forest because of their thick, multilayered barks that act as insulation against heat. The dead bark is shed to reveal the next layer, giving it a smooth look. In contrast, polar bears can survive very cold temperatures because of their fat deposits and densely layered fur. Interestingly, adaptation traits can also be a reaction in the context of emerging technology.
Historically, what represents money is influenced by the available technology at the time. The transition from the barter system to paper money, gold, coins, cards and virtual currency has been largely aided by technology. Bitcoin was the most popular virtual currency introduced within the past 10 to 15 years, in 2009. Bitcoin popularized the use of Distributed Ledger Technology (DLT)/blockchain. Blockchain disrupted traditional ways of making payments and conducting financial transactions through a decentralized peer-to-peer system, which removes the need for a middleman or regulator and lowers the cost of a transaction.
Several governmental entities clamped down on Bitcoin and associated technology because of the decentralized nature that shields it from the reach of central banks/government regulatory controls. The anonymous nature of blockchain transactions could also be exploited for illegal activities – especially money laundering. Even though governments’ reactions could be seen as efforts to sanitize the financial ecosystem, the event that unfolded thereafter made it feel like the cry of a child desperately trying to hold on to their cookie jar.
Allowing Bitcoin and other cryptocurrencies to thrive will mean giving up some government control over the financial system. Blockchain is gradually gaining wide acceptance among industries and sectors, from stock exchanges to healthcare systems. It is no longer a question of whether we should adopt it but when and how that adoption takes place.
In response to this inevitability, several countries are courting Central Banks Digital Currency (CBDC), which is still at different levels of trial and adoption. While CBDC projects and pilots have been underway since 2014, efforts have recently shifted into a higher gear. CBDC design is closely related to Bitcoin and blockchain technology. However, it’s a little different because it is issued by a central bank with the country’s legal tender status. Simply put, it is the country’s currency in digital form.
As stated in Bank of International Settlement Publication, the Bank of Canada, European Central Bank, Bank of Japan, Sveriges Riksbank, Swiss National Bank, Bank of England, Board of Governors of the Federal Reserve and Bank for International Settlements are working on a report setting out common foundational principles and core features of a CBDC. The coming year will bring further discussions around the adoption of CBDC and the issues around its usage. One of the biggest issues for discussion will be how governments will handle the privacy of wallet users and active monitoring to prevent illicit transactions.
Editor’s note: For more blockchain resources, find out about ISACA’s Blockchain Fundamentals certificate as part of the Certified in Emerging Technology (CET) certification.