The world's largest lender, the Industrial and Commercial Bank of China (ICBC), recently published an in-depth analysis highlighting the rapid evolution and increasing diversity of digital currencies, where it compared bitcoin to gold and deemed ethereum “oil.” digital”.
The report emphasizes the human capacity for imaginative belief, as noted by historian Yuval Noah Harari, as a driving force behind the exponential growth of digital currency types and applications.
VanEck Head of Digital Asset Research Matthew Sigel noted:
“Chinese state banks continue to write love letters to bitcoin and ethereum.”
The ICBC report outlines the divergent development paths of several digital currencies, each addressing unique needs within the financial ecosystem.
The love Letter
According to the ICBC report, market demand has driven innovation in the digital currency sector, from the birth of bitcoin (btc) to advances in ethereum (eth) and the exploration of central bank digital currencies ( CBDC).
ICBC said that bitcoin has managed to maintain a scarcity similar to that of gold through its mathematical consensus mechanism. The flagship cryptocurrency has resolved issues related to divisibility, authenticity verification, and portability. The report added that despite bitcoin's waning monetary attributes, its status as an asset is solidifying.
Meanwhile, ethereum provides “technical power for the digital future” and is establishing itself as a “digital oil” capable of powering countless applications across the web3 ecosystem.
ethereum, unlike bitcoin, embodies Turing integrity through its proprietary programming language, Solidity, and its virtual machine, EVM.
This feature allows developers to create and manage complex smart contracts and applications, positioning ethereum as a critical platform for DeFi and nfts. The report also recognized ethereum's potential to extend its influence to decentralized physical infrastructure networks (DePin).
Despite the potential, ethereum faces several practical challenges, including security vulnerabilities, scalability issues due to high computational demands, and significant energy consumption.
ethereum developers are exploring various solutions to address these challenges. The introduction of the Proof-of-Stake (POS) consensus mechanism and sharding technology in the ethereum 2.0 upgrade aims to improve network performance and sustainability. Additionally, developers are working on Layer 2 solutions such as state channels, sidechains, and rollups to improve scalability.
Stablecoins and CBDC
The report also highlighted the crucial role of stablecoins in bridging the gap between the digital currency market and the real world. Stablecoins, which peg their value to traditional assets like fiat currencies, offer stability in the volatile cryptocurrency market.
ICBC said stablecoins facilitate seamless transactions and provide a reliable store of value, making them an essential tool for everyday financial activities and a bridge for the integration of digital currencies into the global financial system.
Furthermore, CBDCs represent a significant innovation in the modern monetary system. By digitizing fiat currencies, central banks can improve the efficiency of payment systems, reduce transaction costs, and improve the effectiveness of monetary policy.
According to the report, CBDCs can streamline cross-border transactions, reduce reliance on intermediaries, and deliver greater financial inclusion by providing access to digital financial services to unbanked populations.
The report noted that the development and implementation of CBDC infrastructure requires careful consideration of privacy, security and regulatory implications to ensure its success and widespread adoption.
The report concluded that while the development vision of each digital currency varies, they all aim to improve financial inclusion, security and payment efficiency. As digital currencies continue to evolve, developers and policymakers must focus on balancing sustainability, security, and efficiency.
