Central Bank Digital Currency – CBDC
It is not possible to use Bitcoin, one of the most widely used digital cryptocurrencies, in our daily work since Bitcoin ATMs are scarce and often inaccessible, government-backed institutions still do not fully welcome the crypto world, and banking transactions are not sufficiently extended to current institutions and brands. At the same time, the prevalence and high investment of cryptocurrencies around the world have become a bit of a threat to the existence of traditional coins. Central Bank Digital Currency – CBDC stands out as a digital currency idea to be supported by traditional government institutions. Because the central bank will launch it itself.
What is Central Bank Digital Currency – CBDC?
Many governments started to work actively to develop a new type of digital currency. One of the main benefits of this new digital currency is the increased efficiency of payment systems and reduced costs for everyone who takes part in the process. CBDC are can be thought of as a new type of digital currency that built upon a technological layer that gained inspiration from blockchain developments.
The difference between cryptocurrencies and CBDC is that CBDCs are a digital form of fiat money, not ”cryptocurrency”. In this way, CBDC is considered money as per government regulations. That means it will neither be decentralized, nor anonymous.
More Information About CBDC
The approach to the design of a CBDC will likely differ greatly depending on which country produces the money. Some applications may be based on blockchain or DLT technology, while others may simply emerge as centralized databases. Blockchain-based ones are required to use a token that represents the digital form of the fiat currency.
While we know that CBDCs are inspired by cryptocurrencies like Bitcoin, these two currencies are actually quite different from each other. CBDCs are issued by states and accepted as legal currency by governments.
- This database is permission-based, as CBDC only authorized individuals can transact on the network.
- Thus, the center that manages the database also has the power to block transactions, reverse transactions, freeze funds, or blacklist addresses.
- Additionally, CBDCs also make it easier for governments and central banks to track illegal activity.
