European Union Study shows central banks coming together with their own digital currencies, i.e., CBDCs could mean an end of the journey for the decentralized digital tokens.

Bitcoin has been struggling for quite some time for its mainstream adoption, as crypto investors and enthusiasts are waiting for developers to bring a robust scalability solution. On the other hand, the European Union Study shows central banks coming together with their own digital currencies, i.e., CBDCs could mean an end of the journey for the decentralized digital tokens.

The European Parliament Committee on Economic and Monetary Affairs (Econ) has recently published a report ‘Monetary Dialogue for July 2018‘, where it states that central banks could halt the progress of decentralized digital tokens like Bitcoin and Ethereum.

Another report titled Competition issues in the Area of Financial Technology (FinTech) authored by the Police Department for Economic, Scientific, and Quality of Life Policies, states that if central banks were to issue their own digital currencies, it could strangulate the demand for decentralized tokens. The report notes:

“The arrival of permissioned cryptocurrencies promoted by banks, even by central banks, will reshape the current competition level in the cryptocurrency market, broadening the number of competitors. A potential inadequacy of traditional competition policy to address competition issues in the cryptocurrency markets can be found, suggesting direct public participation through a central-bank digital currency as a remedy.”

It further adds:

“However, the market power of banks in traditional banking services might be used to limit competition in the cryptocurrency market through pre-emptive acquisitions or predatory pricing schemes.”

The report also mentions that Bitcoin and Ethereum alone dominate 88% of the crypto market and there is severe lack of competition between cryptocurrencies. The report clearly goes to indicate the centralization of the cryptocurrency market as the report mentions that this is “a relevant indicator of the current market concentration.” The report notes:

“Competition problems of the inter-cryptocurrency market are quite sophisticated, given the complex activities that are part of the value chain. One of the most significant is the presence of network effects related to the network and platform nature of cryptocurrencies. This prevents a currency from being substituted by another competing one and resulting in ‘a substantial barrier to entry and, at the same time, give incumbents large market power’.”

The report has been published with a complete analysis in the areas of financial technology like insurance, banking, forex, personal finance, wealth management, and digital currencies. The report also goes to mention that Bitcoin could also be at a risk from the lack of mining competition. Last month a report showed that Chinese fintech giant Bitmain is currently dominating the Bitcoin mining process and is dangerously close to acquiring more than 50% dominance in the Bitcoin network hashrate.

The report goes to state that the international modus operandi of virtual digital currencies could also be a challenge for the European competition policy. It states:

“Many of the players operate from global locations outside the jurisdiction of European competition authorities, which makes investigation or prosecution on anticompetitive behaviours more difficult.”

It further adds:

“Europe leads, at international level, the supply of wallet and exchange services, with 42% and 37% in terms of number of players. It is also the principal actor in payments (33%). Nevertheless, the main weakness of Europe is the concentration of the mining activity on non-European countries (Europe only captures just 13% of the current mining market),”

While the latest EU Study undermines the existing decentralized crypto market, previous reports and studies have instead presented counter views. The latest report from Imperial College London goes to show that cryptocurrencies are poised for mass adoption in the coming 10 years. In this report, the college has stated several factors and reasons backing its claims.

More importantly, the latest report from the G20 advisory board – The Financial Stability Board (FSB) stated that Bitcoin and other cryptocurrencies do not pose any major risk to the global financial economy at this point in time.

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