The ECB has announced that it is starting a long field test in order to explore the possibilities of using a digital currency in more detail. Within the next two years, the so-called digital Euro will be tested and the test results will most likely have a huge impact on the ECB's decision regarding the question if they are going to launch a digital currency. But how is the digital Euro different from stablecoins and cryptocurrencies? And will the digital Euro replace cryptos for good?
The ECB is very slow
China has already launched a digital version of the Renminbi in 2020 and started its first field tests in late 2019. But the ECB is taking its time and is moving very carefully before making any decisions. It is not clear if this will lead to more sophisticated results or a fatal loss in a race with China trying to adopt a groundbreaking new technology.
More importantly, it will take at least two more years until the ECB will present results and a decision regarding digital currencies. And even if the decision is positive, it will take even more time to bring new laws and regulations into effect.
Even if the digital Euro could pose a risk to cryptocurrencies, it will take a long time until this will become a real problem for the market. But there is enough reason to believe that this won’t be the case anyway.
Are digital currencies superior to cryptos?
This question cannot be answered directly, because digital currencies and cryptocurrencies are not comparable. A digital Euro would be just a digital version of cash with almost the same qualities as physical cash.
The closest thing to it would be a stablecoin and as we all know those are not backed by the ECB, but in most cases by an equivalent amount of cash deposited with a bank. A cryptocurrency is also a completely different thing and has a different value proposition. Let’s take a look at a few important qualities of Bitcoin:
- It is decentralized and censorship-resistant
- The supply is limited and therefore scarce
- No single entity can control its network
None of this is the case with a digital version of the Euro. A digital version of cash might turn out to be useful, but it is not competing with cryptocurrencies. It is therefore highly unlikely that they will make cryptocurrencies obsolete since both offer a different use case.