A new study from the European Parliament has called for permissioned cryptocurrencies to level the competition in the cryptocurrency market.
Reshaping the Current Competition
The study by the EU Parliament is titled “Competition Issues in the Area of Financial Technology (FinTech).” The study looks at the competition within the fintech ecosystem. This is despite the fact that the industry is young and still evolving.
One of the areas that it focuses on is cryptocurrencies. It makes note of the fact that, at present, the competition with digital currencies is limited; however, it’s also growing. Notably, it states that cryptocurrency competition may bring about “hypothetical cartels.” This, it highlights, could see them colluding to use one crypto asset, which could bring about a “substantial barrier to entry” for any other sort of competitor.
The study states:
The arrival of permissioned cryptocurrencies promoted by banks, even by central banks, will reshape the current competition level in the inter-cryptocurrency market, broadening the number of competitors.
It suggests that a central bank digital currency (CBDC) could be the “remedy” to addressing competition issues in the crypto market.
Complementing Permissionless Cryptocurrencies
Bitcoin, Ethereum, and Litecoin are just a few of the digital currencies that operate as open permissionless assets. This means that no single entity has control over it.
This is compared to closed permissioned ones, such as CBDCs. These require an authorized entry and operation. Yet, according to the study, it is these that could complement permissionless ones, noting:
The central banks or traditional banks could be planning to use those permissioned cryptocurrency systems in an attempt to complement or substitute the permission-less currencies already in use.
Even though this is a possibility, it remains to be seen if it will be a success. In April, it was reported that the Bank of Japon (BoJ) was not going to issue a CBDC. This was due to the impact on financial stability.
Last week, Alex Pollock, senior fellow at the R Street Institute, argued during a U.S. Congressional Subcommittee on Monetary Policy and Trade that “a central-bank digital currency is one of the worst financial ideas of recent times.” However, he added that “it’s still quite conceivable.”
This study comes at a time when Bitcoin saw its value rise to above $8,000 during early morning trading today. This makes it the highest level reached since May. As the market continues to gain mainstream popularity, though, the traditional finance system is keen to make sure they retain a tight grip on it. That means even if they have to issue CBDCs.
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