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Citi's Tony McLaughlin on CBDCs, Libra and bitcoin

Citi's Tony McLaughlin on CBDCs, Libra and bitcoin

Tony McLaughlin of emerging payments and business development at Citi tells Finextra TV of his soft spot for bitcoin as an alternative investment, but points out the inefficiencies that still afflict the cryptocurrency.

Comparing bitcoin to central bank digital currencies (CBDCs) being developed in countries such as China and Sweden, with research and discussion ongoing in many others, McLaughlin draws attention to the proof-of-work model that the bitcoin blockchain is built on.

“CBDCs will not rely on proof of work. They will be quasi-centralised systems and not open to anonymous people running nodes,” he says.

McLaughlin says this would also be the case with private digital currencies like Libra.

The shortcoming of a proof-of-work blockchain is the substantial amount of energy required to power the computers used to solve the mathematical problems and win the right to add the next block to the ledger.

This makes mining a hugely expensive task and with a diminished reward now that bitcoin has experienced its third ‘halving’ it may prove an untenable business to be in.

McLaughlin describes the proof-of-work model and the ensuing energy expenditure as a function of how people achieve consensus in these open ecosystems.

Nonetheless, McLaughlin speaks of his fondness for bitcoin due to the fundamental ethos that lies behind it.

“I’ve got a little bit of a soft spot for bitcoin because of its ideological purity, if you like,” he says, “given the utopian idea of one currency for the whole world.”

Independent from the negative consequences of financial stimulus from governments and central banks, bitcoin provides a useful diversification tool in investment portfolios to protect against inflation.

The cryptocurrency suffered an initial plunge in its value in mid-March, dropping to below $4000 at one point, before tracking back up and has been consistently challenging the $10,000 resistance level over the past month.

“Bitcoin is a non-correlated asset, so it’s okay for those purposes, but for actually making payments it’s got some significant downsides,” McLaughlin says.

“Adoption of bitcoin for payment transactions hasn’t taken off during this period. It remains a speculative or alternative asset in the same way that people invest in racehorses, art and wine.”

Comments: (2)

A Finextra member
A Finextra member 19 May, 2020, 16:28Be the first to give this comment the thumbs up 0 likes

It was always borderline absurd to embrace "proof of work" in corporate cryptosystems.

The "trustless" paradigm of mining and proof of stake was designed for paranoid cybernauts who wanted to embrace an anonymous world. 

By focusing on "trusted" estabished nodes that have skin in the game, the banking industry can now focus on developing real blockchain/cryptosystems for the future ahead. 

I turned down so many so-called 2018 blockchain jobs because I saw the project focus on a worthless proof-of-stake paradigm knowing they wasting time and energy on the "trustless" endeavor to emulate Bitcoin

Russell Bell
Russell Bell - Fastbase Ltd - Wellington 20 May, 2020, 02:59Be the first to give this comment the thumbs up 0 likes

Proof-of-work has been in the wild for years and hasn't been cracked.  It works.  The concept of proof-of-stake has been around for years but it hasn't had it's viability tested in the wild, it's still just talk.

Trustless is the entire point of blockchain.  A blockchain consisting of only "trusted" nodes is indistinguishable from a centrally-controlled currency.

Trustless is about certainty.  On a trustless blockchain nobody can claw-back a payment, and no central authority can issue new currency at their discretion.

It's not just paranoid cybernauts who are frustrated with the model of payment services offered by banks and credit-card companies.  Ordinary merchants suffer much from arbitrary payment reversals and high fees.

Trustless doesn't imply anonymous, that's a different matter.