Will central bank digital currencies overpower cryptocurrencies?
Well, it’s hard to say with 100% surety whether CBDC can overpower cryptocurrencies
Are you aware of CBDC? CBDC stands for Central Banks Digital Currencies. If you know about cryptocurrencies, you might have come across this term. Maybe you know that cryptocurrencies work in a decentralized network that helps you send money directly to a user without any intermediary.
However, some people don’t trust cryptocurrencies because the Central Banks or the government does not back them. Therefore, some banks and financial institutions are experimenting with centralized Cryptocurrencies. Here you will know the basic difference between CBDC and regular cryptos.
CBDC vs. Regular Cryptocurrencies
Governments and banks across the world have come up with centralized Cryptocurrencies that can become a reality in the future. Here you will know about the basic difference between a regular Cryptocurrency and a centralized Cryptocurrency backed by banks.
- Autonomy and Privacy
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A regular Cryptocurrency works in a decentralized network while a CBDC is centralized. That means a regular digital currency does not need any central authority to manage and control the network. Numerous computers connected to the blockchain network manage cryptocurrencies by verifying the transaction. They get Block rewards for verifying the transactions.
On the other hand, central banks will manage and control a CBDC. Although it will be different from normal fiat currencies, banks will have authority over the digital currency transactions. However, many people support it because they trust in the government and its policy.
Central banks and governments will work more aggressively on CBDC implementation in the coming days. Since they were busy improving employability and fight the impact of the COVID-19 pandemic, inflation has risen high. So, they expect CBDC can help economies to fight inflation.
Autonomy and Privacy
When it comes to autonomy and privacy, a regular Cryptocurrency gives you more freedom. Since a user can stay anonymous while making Crypto transactions, it provides great privacy. Moreover, you have more control over your Crypto holdings because banks don’t manage Cryptocurrencies. So, you have the freedom to spend Cryptocurrencies in the way you want to spend.
On the other hand, CBDC will not provide that privacy and autonomy feature. Banks will have control over the centralized Cryptocurrency. So, you will have less freedom over your CBDC holdings. Additionally, it can restrict users who are making illegal transactions. It’s one of the best things about CBDC because it can reduce cybercrimes and illicit transactions. However, people who want to use a liberal financial system may not like the concept of CBDC.
When it comes to security, we all know that Cryptocurrencies offer the highest security due to Cryptographic encryption. Since they work in a peer-to-peer distributed network, it’s hard to manipulate the data from the Blockchain. If an unauthorized user gets access to one node of the Blockchain, it won’t affect the whole network.
However, CBDC will have more security risk as it is centralized. If someone gets access to the central network, it will affect the whole network. Moreover, it’s found that government agencies are involved in coordinated hackings. So, CBDC is not a better option than regular Cryptocurrencies in terms of security.
Although CBDC may have some negative impact on regular Cryptocurrencies, it also has a positive side. The testament of CBDC is the gateway for the wide adoption of virtual currencies. Since the government and central banks are involved in CBDC, more people will enter the Crypto world.
Can CBDC Overpower Cryptocurrencies?
Well, it’s hard to say with 100% surety whether CBDC can overpower Cryptocurrencies. Since there are several challenges along the way to build a sustainable infrastructure for centralized Cryptocurrencies, it’s better to wait and see how central banks can deal with the obstacles. What’s your thought on the adoption of CBDCs and their impact on regular Cryptocurrencies?