“About 80% of central banks in a recent survey were looking at implementing CBDCs, and more than half have already started running experimental pilots.” –Roger Huang, Contributor to Forbes, Central Bank Digital Currencies Are Not Cryptocurrencies, Oct 13, 2020,02:30pm EDT
Bitcoin and cryptocurrency have risen to the world stage over the past couple of years. Not to remain unchallenged in their mission for DeFi and decentralized data exchange, however. As nation-states watch as communities and individuals create and utilize digital assets, many have sought to develop versions of their own that suit the needs of their central banking system.
It’s only appropriate… Decentralized currencies unveil themselves to the masses and win over the hearts of millions; causing governments to seek out a way to play their role in this “digital revolution”.
What is A CBDC?
They’ve popped up in the news in recent months as economics are drastically shifting globally. CBDC is the acronym for ‘Central Bank Digital Currency’. It’s a self defining term: a digital currency implemented by a central bank.
CBDCs are a digital form of a nation’s currency distributed and monitored by the central bank. They differ from digital forms of fiat and cryptocurrency. Thought to be more regulated and far more efficient than physical and current digital currencies and are liable to the central bank itself rather than commercial banks. From cryptocurrencies, they are a centralized digital asset while one of the biggest and most important roles of crypto is to decentralize.
Central Banks
A central bank is often a private institution that oversees monetary policy for the state. These banks mint money for either one state or many, and offer a currency for public commerce. They dictate things like interest rates and can manipulate money supply in a given circumstance. Central Banks are often the monetary safety net for a state or entity during a time of economic hardship.
In other words, central banks are politically independent from governments but are those who act as a supply and overseer of government currency.
CBDCs vs Digital Fiat
CBDCs are different from the digital dollars that most of us see in our bank accounts today. Commercial banks are liable for the money they hold, whereas a CBDC would have the central bank liable for any and all currency issued.
In the event that a CBDC is issued, the central bank would also need to issue and verify payment systems and digital wallets. The whole ecosystem, much like cryptocurrencies, would operate under one umbrella of the network itself. With Central Banks being the ‘network’, the CBDC as the ‘native currency’ and your digital wallet basically as your new bank account.
If anything, it will be a lot faster, cheaper and far more efficient to move this digital money, as we’ve seen with blockchain-type technology. Safety and security also comes with these digital currencies. However, these perks come at the cost of far more regulation. Every transaction that you do is known by the network- every dollar, everytime, everywhere. Is that really better than the cash we have in our pockets now?
CBDCs vs Cryptocurrency
Which leads into how they differ so much from cryptocurrencies like Bitcoin and Ethereum. The main selling point of crypto is decentralization. Power over one’s assets. Complete autonomy in a trustless environment. CBDCs go against this at their core.
It’s in their name: CENTRAL Bank Digital Currency. One half of those words disagree totally with DeFi. Digital Currency is the common ground… It brings speed, security, scalability, safety and efficiency to the table. However, most blockchain networks and cryptocurrencies operate internationally in an open sourced manner. This brings accountability, growth and greater privacy to a network. With CBDCs, we’re stuck with the central bank at the helm- not to mention the centralized access and usage of our data… Kinda scary.
Expect to See CBDCs
So many central banks are looking into the development and implementation of their own digital currencies. It’d be hard to believe that international bankers would let crypto just take away their grip on humanity. We’re most definitely going to see nation after nation launch one of their own.
The only thing that would stop CBDCs from being implemented is for borderless monetary policy and perhaps the adoption of Bitcoin or another currency as a reserve or standard. Either that or the continuation of the system which we have currently. Either are a possibility, but with the rising of Bitcoin and others, the latter is less likely.
More and more countries are already investing time and resources into these technologies. China has already been diving into giving it a try. Other banks such as the Federal Reserve and the European Central Bank have been taking a deeper look into development. Others like El Salvador and the Central African Republic have gone ahead and have started using Bitcoin as legal tender.
Shady Central Banks
So what? Crypto can just gain more traction and power over financial systems, right? Isn’t that the point of DeFi and Decentralization? Well, it’s not that simple.
Central Banks literally dictate monetary policy… If they don’t want to see crypto win, they’re going to give all the hell they can to fight back against it. The question is, how much power do these banks have, even if they were to inject society with their digital currencies?
We’ll see as time goes onward, but it looks as though Bitcoin, Ethereum, and a great lot of other crypto projects will only continue to grow. Especially as more nations adopt it and CBDCs come into play: regulation is the greatest advertisement for cryptocurrency.
