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How Cryptocurrency Could Be Good For CBDC And Vice Versa

Image Source: Chinnapong / Shutterstock

Cryptocurrencies like Bitcoin (BTC) could potentially find some mutually beneficial interactions with central bank digital currencies (CBDCs), according to one industry executive.

While crypto is often associated with financial freedom, the concept of CBDC is frequently seen as the exact opposite. But this doesn’t mean that there cannot be a balance between the two, according to Itai Avneri, chief operating officer and deputy CEO of the crypto trading platform INX.

CBDCs and regulated cryptocurrencies could potentially complement each other in the future as the two types of digital currencies have their own benefits, Avneri said in an interview with Cointelegraph on Dec. 22.

Comparing CBDCs to regulated primary offerings, Avneri suggested that allowing or enabling crypto funds to participate in such offerings would be beneficial for both sides. That would specifically expose such financial instruments to a wider audience while also giving crypto investors “comfort and confidence to trade in a regulated environment.”

“In my vision, the CBDC ecosystem will not be different, but we have a long journey ahead of us till we get there,” INX deputy CEO said, adding that balance between CBDCs and crypto would be a “master art.”

The exec noted that he is unfamiliar with any current initiative that would allow one to buy a cryptocurrency like Bitcoin with a CBDC or other potential interactions between CBDCs and crypto.

Avneri also pointed out the importance of combining regulation and decentralization because full decentralization misses out on regulations like Know Your Customer (KYC) controls, which “comes with a price that sometimes is not good for investors.” He stated:

“When thinking about working with governments and central banks, I believe customers must be identified as it will serve their interest and will build the needed trust in the ecosystem.”

Avneri emphasized that CBDC users still need to be able to interact in a private manner “similar to how they may use physical cash today.”

The news comes amid INX entering a partnership with authentication firm SICPA to help governments develop CBDC ecosystems. As previously reported, INX was the first company to conduct a tokenized initial public offering approved by the United States Securities and Exchange Commission in 2021.

INX deputy CEO is not alone in thinking that CBDCs and cryptocurrency technology could be beneficial to each other in the future. Thomas Moser, a governing board member at the Swiss National Bank, believes that centralized financial projects like CBDCs could enable more stability in the development of decentralized finance.

Mikkel Morch, executive director at the digital asset hedge fund ARK36, also believes that CBDCs do not pose any direct threat to cryptocurrencies like Bitcoin. Still, CBDC can bear some risks in relation to stablecoins like Tether (USDT), according to Morch.

Image Source: Chinnapong / Shutterstock

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