By Eleftherios Jerry Floros
“A price-stable currency, such as a token pegged to the US dollar, is critical for enabling mainstream adoption of blockchain technology for payments as well as for supporting maturation in financial contracts built on smart contract platforms, such as tokenized securities, loans, and property. There are several interesting approaches to solving this need, spanning algorithmic re-imaginations of money supply to crypto-backed tokens to fiat asset-backed tokens.”
– Circle blog
In an attempt to “institutionalise” cryptocurrencies, Goldman Sachs backed Circle just announced that through CENTRE (open source framework), they will issue their own Circle USDC (US dollar coin) which is going to be pegged to the US dollar one-to-one and will be made available to the general public for everyday buying of goods and services. In other words, leave real dollars at home or in the bank and go shopping with your Circle coins securely stored in your crypto wallet.
For a financial behemoth such as Goldman Sachs to issue (via its Circle startup) a cryptocurrency is remarkable, to say the least, and can only mean two things :
1. The financial markets are ready for an alternative to cash and fiat money in the form of asset-backed stable coins
2. Financial institutions have come to the realisation that cryptos have become mainstream and therefore they want to grab a share of the global crypto market
At this stage, however, it is not clear how Goldman Sachs/Circle will monetise their USD Coin issuance other than via their wholly owned subsidiary CENTRE and service provider interface, which will be necessary in order to participate in the network and earn fees from the services that they will provide to the transacting network members.
Furthermore, it appears that Circle is prepared to forego big profits (at least in the beginning) in the search for market share and wide-scale adoption. And more importantly, Circle is stating that eventually and in due time, CENTRE will be made a completely independent entity, governed by its members.
By issuing the first crypto that is almost immune to volatility (except for the pegged dollar volatility) and controlled by a major financial institution (through CENTRE which is on an open source framework with an open membership scheme that eligible financial institutions can participate in), Goldman Sachs is breaking new ground and going for a major land grab in the emergent global crypto market.
Notably, Goldman Sachs could, in the foreseeable future, add other Circle Coins pegged to other currencies such as the pound or the euro, and even offer its coin framework to corporations and government institutions seeking to jump on the cryptocurrency bandwagon.
“It’s a very important enabler for a private central bank. Currencies can do good or bad things, so we need a certain framework to limit money laundering risks. If we have an open platform we can limit the potential negative things”
Jihan Wu, Bitmain CEO and Founder
Should Goldman Sachs succeed in their endeavours, it would create the first “institutional” central bank. Of course, Goldman Sachs (via CENTRE) could not raise or lower interest rates or decide on monetary policies, but it could expand or constrain the supply of their Circle coins at will.
This might seem like nothing important at first if wide-spread adoption and acceptance of Circle coins comes about, then one centralised private institution will control the supply of digital money. This could be deeply disruptive as well as ground-breaking, but it could also spell the end of truly decentralised cryptocurrencies. Unless other “stable” cryptos can provide better stability and scalability, wider adoption and a more compelling use-case, it will indeed be a very challenging future for all the current cryptocurrencies.
There is, however, a big difference between centralised cryptocurrencies using distributed ledger technology (DLT) and decentralised cryptocurrencies on blockchain. Whereas cryptos on blockchain such as bitcoin are without any “central control”, permissioned DLT is always subject to some sort of central control or governance, hence the requirement to have permission to access the DLT network. Prime examples are R3 Corda (a consortium of big banks and financial institutions developing their own DLT) and Ripple.
For the global crypto and blockchain community, anything that is not truly decentralised is not crypto, merely a deliberate but futile attempt to try to centralize control of the decentralized revolution.