The European Central Bank unveiled a discussion paper this week on the pros, cons, and economics of implementing central bank digital currency . It suggested that CBDCs could help stave off dominance from BigTech firms in the payments market due to “network externalities” surrounding the use of a medium of exchange.
This tendency towards centralization is caused by “network externalities” – meaning that users are attracted to these platforms precisely because others are using them.“In the extreme, this can give rise to a winner‐takes‐it‐all outcome with a single dominant platform in a particular market segment,” explained the report.
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