Britcoin, not to be confused with Bitcoin, is the name given by the British Chancellor of the Exchequer Rishi Sunak to the hypothetical digital currency of the British central bank.
In fact, it is also the name of an old cryptocurrency project that has been abandoned for years.
The British Pound
The British central bank, Bank of England (BoE), is the one that issues and manages the British Pound (GBP), which is one of the oldest fiat currencies still in circulation, as it has been around since 1489.
Since last year, the bank has been studying the feasibility of a natively digital version of the Pound. That would be a so-called CBDC or Central Bank Digital Currency, but from a strictly financial standpoint, it would be the exact same thing as the current Pound, only it would be based solely on a public digital ledger.
Therefore, it would not be a cryptocurrency but only a natively digital version of the British fiat currency already widely traded on the markets, especially in digital format.
The progress of work on Britcoin
BoE is still considering whether to launch its CBDC, or “Britcoin,” as Sunak called it, and has not yet decided whether or not to proceed with its creation and distribution in the market.
The fact is that the bank is worried that the increasing popularity of stablecoins, which are cryptocurrency tokens collateralized at par in fiat currency, will end up creating problems such as a possible wave of money withdrawals from banks or putting financial stability at risk.
Truth be told, there are very few stablecoins pegged to the Pound on the market nowadays, and they have extremely limited usage, but those pegged to the US dollar are still widely used around the world.
However, a CBDC could also have other advantages over using a classic fiat currency that is not natively digital; therefore, Britcoin could introduce some important innovations to the UK financial landscape.
Britcoin and the advantages of a CBDC
First, the fact that it is a currency that can only be exchanged with digital transactions recorded on a centralized ledger managed by the central bank would make it much better in terms of transaction tracking.
Furthermore, since all intermediaries using fiat currency are required by law to identify and verify the identity of users, this would make it possible for the central bank to trace the names of all those involved in all transactions.
Smart contracts could also be uploaded to the central digital ledger, with the central bank acting as a guarantor that they are executed and used correctly.
Only cryptocurrencies and tokens can use smart contracts, while they are completely absent on fiat currencies.
Britcoin would allow the central bank itself to have complete and absolute control over its issuance, whereas now commercial banks can also issue fiat currency, albeit under the control and supervision of the central bank.
Differences with traditional currency
The main difference between Britcoin and the current Pound is that there is currently no single ledger on which all transactions are recorded.
In fact, as far as bills and coins are concerned, there is actually no transaction register at all.
Instead, all transactions in a CBDC would be recorded on the single digital ledger operated by the central bank, effectively forcing all intermediaries, including other banks, to use it as well.
The second difference is that nowadays, it is not possible to create self-executing smart contracts with the Pound. At most, you can create them using GBP-based stablecoins.
Differences with cryptocurrencies
The main difference between CBDC and cryptocurrency is that the latter has a distributed and decentralized ledger, not controlled and managed by any entity other than the open-source computer protocol with which the software for their use is created.
Since it is unthinkable that a central bank’s digital currency can be based on a decentralized registry on which the central bank itself could not have any power, this difference is unbridgeable.
Moreover, precisely because they are managed in a decentralized way, no one has the power to intervene to block, limit, modify, or eliminate transactions in cryptocurrencies. In contrast, the BoE will have full authority to block, limit, modify, or eliminate transactions in Britcoin.
When will Britcoin arrive?
As of today, it is impossible to give a date for the debut on the markets of the British CBDC. In fact, it is not even possible to say with certainty that it will see the light of day sooner or later.
The only things that can be said about it are that it definitely won’t be issued anytime soon, but at the same time, it seems to be likely that it will sooner or later.
The post Bank of England and CBDC: What is Britcoin? appeared first on The Cryptonomist.
