Understanding what Central Bank Digital Currency is All About
If you have an interest in cryptocurrency, you must have come across Central Bank Digital Currency, commonly referred to as CBDC. However, there are very few people who understand what this is all about and there are so many questions and concerns over the same. There have been speculations that CBDC is out to kill cryptocurrencies in the next few months. So what is Central Bank Digital Currency all about and how does it affect cryptocurrencies? Please keep reading to the end.
Introduction to Central Bank Digital Currency
To start us off, let us get to the basics of CBDC. This is an emerging and new type of virtual currency. In recent years, there has been an increase in the interest in cryptocurrencies like Ethereum and the all-known Bitcoin. One of the major attractions to crypto is the fact they are decentralized in nature, which means that they are not regulated by any bank or government. Cryptocurrencies purely run on blockchain networks and are hard to ignore.
In a similar manner, CBDC intends to use similar technology as cryptocurrencies. However, the main difference with cryptocurrencies is the fact that Central Bank Digital Currency will be centralized. This means that it will be a virtual currency that has financial institutions overseeing it. CBDC will serve as a digital payment backed up by commercial banks. In essence, it is safer to say this will be a digital form of fiat currency.
What Makes CBDC Popular?
Studies and reports indicate that there are so many countries rooting for this type of digital currency. There is an argument that with a blockchain currency, transaction costs will be reduced and there will be a great improvement in processing payments. This is different from traditional payment systems, which are slow and expensive. Traders love the fact that Bitcoin Circuit allows them to trade in a seamless and safe manner.
Central Bank Digital Currency is seen as a way of improving financial inclusion and accessibility for many people. With the use of intermediaries like banks and other financial institutions, there are so many people who are not accommodated. This is one of the challenges in the financial markets that CBDC seems to solve. If all works out well, then there will be significant growth of the global economy.
How is CBDC Different from Cryptocurrency?
For the average person, it may be almost impossible to see the difference between cryptocurrencies and CBDC. Both are mediums of exchange and are based on blockchain networks. However, there are some glaring differences between the two types of virtual currencies. The primary difference is the fact that cryptocurrency is decentralized while CBDC is centralized. With the centralized structure, CBDC used private blockchains, which are permissioned.
With cryptocurrencies, users love the fact that they can complete their transactions anonymously. It is almost impossible to identify anyone with a crypto transaction. However, central bank digital currency will link all transactions to your personal profile including bank details. The rules of CBDC are set and regulated by central banks.
Does CBDC Mark the End of Crypto?
Both those who are in love and those who are skeptical about cryptocurrency are looking for the answer to this question, has CBDC come to terminate cryptocurrencies? Well, from the look of things, central bank digital currency seems to be interested in providing a better infrastructure for payments. Cryptocurrencies are on the other hand, looking for ways to become recognized currencies.
We can safely conclude that central bank digital currency is a virtual form of fiat currency. It is still in the implementation stages and there is so much that needs to be fine-tuned. Cryptocurrency seems to be here with us for a long time to come.