Why and How CBDCs Pose a Threat to Cryptocurrencies

by Ewan Lewis | Daily Coin

What if the government had its own cryptocurrency? And what if I told you that this eerie prediction is much closer and more real than any of us could have believed?

What I’m referring to here are CBDCs, a realistic but also worrying tool that, if embraced by the public, could be used to tackle the crypto industry head-on.

Many people have speculated whether CBDCs could replace crypto in the near future. Today, we’ll analyze how they work and whether they pose as big a threat as some have theorized.

What Does CBDC Mean?

CBDC refers to a central bank digital currency, which, just as the name implies, is a nationalized digital currency controlled and issued by a country’s government and central bank.

This national payment system would be completely digitized, meaning governments could track all transactions and balances made from people’s personal bank accounts in a larger database.

Why are CBDCs Being Introduced?

If fiat money has existed for thousands of years, though, why are CBDCs so necessary today?

One reason is that using physical currency, such as banknotes, has become much more rare these days. Most people now decide to purchase and sell goods on the internet with digital payments.

The other, and more alarming, reason is to try to push back on the expansion and adoption of crypto. After all, CBDCs and crypto work similarly, but they also have a few key differences that make them distinct.

The Major Differences Between CBDC and Crypto

As many investors will already be fully aware, cryptocurrency is extremely volatile. Prices can rise and drop on a dime, depending on community participation, hype, and news headlines.

CBDCs, on the other hand, will always maintain a stable value because they are designed as a country’s national currency.

A counter-argument to this could be the idea of stablecoins, which are crypto coins pegged to fiat currencies, being a form of CBDC. However, stablecoins are backed by private providers in the crypto ecosystem, while CBDCs are controlled by central banks directly tied to the government.

Another important difference boils down to regulation. More specifically, most crypto tokens are unregulated, while CBDCs would be under the full control of a government. Therefore, if introduced to a population, they would dictate how they are distributed and shared. Read Full Article >