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It’s only a matter of time before we see Central Bank Digital Currencies (CBDC) making a dent in the global financial landscape. Right now, it’s hard to tell what sort of impact they might have on traditional crypto and the financial markets as a whole.
By looking at CBDC vs. cryptocurrency, you have a better chance of predicting the direction of the crypto and digital currency world in the coming months and years. The big question is, are CBDC currencies going to have a serious impact on crypto?
Well, in this guide, we’ll explain some of the key differences between CBDCs and cryptocurrencies. Then we’ll discuss whether CBDC is a threat to crypto. Read on to get the lowdown.
What Is a CBDC?
A CBDC is a concept of fiat currencies being digital ones. Many nations are now developing these currencies, possibly with the aim to phase out physical money. One of the major draws for a country to have CBDC is that they may have much more knowledge of transactions (and people’s actions) in their economy.
We should mention that both CBDC and cryptocurrencies use blockchain technology at their foundational levels. However, CBDC is controlled by one centralized body in the form of a central bank, while most of the crypto world is heading in a totally different philosophical direction.
So where CBDC is moving towards more state control over its fiat money (more regulation), the cryptocurrency world has a strong tendency toward deregulating currency (DeFi). You can argue the case that developers formed cryptos with the intention of getting away from the need for government regulation.
Crypto developers want to create cryptos that are permissionless, trustless, and decentralized as core principles in the crypto movement. This is a stark contrast to what CBDC is all about.
Could CBDC Be Successful?
There is an argument that CBDCs could make big waves in an area where Bitcoin failed. Bitcoin has heavy gas fees, which makes it pretty useless for value transfer in the domestic or international markets.
CBDCs could shine through with their ability to make cross-border payments less of a challenge. This would all depend on how a government designs its digital currencies, though.
And with the volatility associated with cryptos so far, governments may be able to push their CBDC agendas with ease if they argue their case well. Yet, there is a strong chance that seasoned crypto users will all-out reject the CBDC concept. Such users may push even harder towards increasing the decentralization of cryptos and digital assets.
If you’re not sure about the direction of the crypto world right now, we recommend you check out truecodecapital.com for some logical thinking on the matter.
Final Thoughts on CBDC vs. Cryptocurrency
In the next few years, we could see an ideological war being waged between those who want to centralize currencies and those who want the opposite. We’ll just have to see how far governments are willing to push against DeFi or find ways to work with the evolving crypto climate.
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