There are some differences between CBDC and cryptocurrencies, some more obvious than others such as digital currencies, payment methods, fiat currency, and others. Cryptocurrency is somewhat decentralized while CBDCs don’t. Check the article to find out more.
The world is becoming more and more technological and digital. One of the things that have also become
popular is online payments, such as MBway in Portugal, Pix in Brazil, and Venmo in the US. These applications have been increasing due to the fast, convenient, and secure sending of money. With
this, CBDCs and cryptocurrencies are becoming talked about the topic!
What are CBDCs and Cryptocurrencies?
CBDC stands out for “Central Bank Digital Currency” and is fiat currency’s digital or electronic form. It’s an alternative to traditional fiat money that can provide several advantages, such as security, low costs, and speed of sending money and payments.
CBDCs are still in the testing phase and how they will be created. Still, everything points to these CBDCs being developed by a country’s central bank, administered and regulated through a government, law, or monetary authority.
Cryptocurrencies are digital currencies, which offer several advantages such as speed, security, anonymity, and low transaction costs. Most cryptocurrencies are decentralized and use blockchain technology, which
makes it even more attractive to investors because of advanced encryption systems, transactions,
information and data are protected.
Is Cryptocurrency Decentralized? Well… Mostly
Decentralization in a cryptocurrency means that it does not depend on authority, a government, state, or
the central bank for its regulation and administration.
Price fluctuations, appreciation, and evaluation will depend on the economy and design behind the cryptocurrency itself.
Another common feature in most cryptocurrencies is blockchain technology.
If you are new to Crypto, you might wonder about what is Blockchain Technology. Blockchain technology stores and accounts for the records, information, and transactions made by cryptocurrencies decentralized. Various users worldwide store the documents, as we already mentioned in our article “What is Blockchain? Complete Guide “.
In this way, this complex and fascinating technology allows transactions to be very secure and reliable.
You probably are wondering about the Advantages and Disadvantages between CBDCs and Cryptocurrencies? We’ll… get you covered.
CBDCs, are still a project under construction and implementation. However, with the information that is
already known, we can conclude that CBDCs will have advantages and disadvantages, just like
cryptocurrencies.
The main advantages of CBDCs are:
- Control, traceability, and transparency – The transactions and information from CBDCs will be identifiable, traceable, and transparent. With this the Central Bank will have control and will be able to monitor any suspicious activity, thus decreasing illicit activities such as money laundering, fraud, and corruption.
- Financial inclusion – In some countries, such as certain parts of Brazil, the private sector is unable to reach the entire population, resulting in a high rate of people who cannot access banks and other financial institutions. However, most of these people do have the internet, and with CBDCs being digital, it would facilitate the inclusion of these people, and a greater movement in the economy.
- Cost reduction – printing physical money has costs, and with CBDCs the costs of issuance and production would be reduced.
- Faster transactions – since they are digital, payments and sending money within the country or to another country would be much faster than the current system.
The main disadvantages of CBDCs:
- Digital security – this system will be digital and electronic. This digital system could be the target of cyberattacks, which if executed, could have disastrous consequences.
- Need for internet and electrical power – CBDCs are digital, and for payments and money to be sent, the device must be connected to the internet, have a battery, or have electrical power, which can sometimes fail.
- Privacy concerns – CBDCs will be highly controlled and monitored by a central identity, such as a bank or government. And this will cause all monetary activities to be controlled and monitored, leading to concern for some people.
As for Cryptocurrencies, the case is different! While one of the advantages of CBDCs is the control and tracking of activities and transactions by a Central Bank, this is considered a disadvantage for many cryptocurrency investors. Anonymity is something that cryptocurrency investors like.
The main advantages of Cryptocurrencies:
- Empowerment – those who own cryptocurrencies become their own bank. The person is in control of all information and transactions. He can delegate his cryptocurrencies to receive varied rewards, for example.
- Elimination of intermediaries – while in a traditional financial system there are always intermediaries, such as banks, with cryptocurrencies the two parties are able to make monetary exchanges without supervision or intermediaries.
- Transparency and security – due to blockchain technology and strong cryptography, there is great security. Since the blockchain is public, transactions are transparent. This makes it difficult for hackers to attack, as they need private keys.
- Inflation protection – most cryptocurrencies have a fixed supply number! It is not like fiat money that can be printed, as no authority can change this supply number.
- Fast transactions – since they are digital, payments and sending of money are much faster than the current system. There are already cryptocurrencies that make cross-border payments in 3-5 seconds.
- Freedom and anonymity – cryptocurrencies have no limits on transaction amounts and can make payments on holidays and weekends, which is sometimes not possible with the normal financial system. There is more freedom in receiving and paying. Since they do not depend on a central identity, payments only concern the two parties.
Main disadvantages of cryptocurrencies:
- Volatility – due to the uncertain future and the economics of each cryptocurrency itself, price volatility is usually quite high. Negative and positive news also still have a big impact on the price fluctuation. They can generate quick profits, but also abrupt losses.
- Protection – since cryptocurrencies are not fully regulated, there is no policy for fraud, refunds, or theft of cryptocurrencies. For the most effective protection of cryptocurrencies, they should be stored in physical wallets (e.g. Ledger, Trezor…).
- Legality – Since cryptocurrencies are not official or regulated currencies, many countries may want to ban these digital currencies. They may even see cryptocurrencies as a threat, due to anonymity, as they can serve for terrorism and money laundering, for example.
Which will lead us to the future, and the digitalization of the economy
We are moving towards a future where the economy will be more digital. Both cryptocurrencies and CBDCs
share something in common: being digital!
Control by government and authorities has been increasing, in every sense. CBDCs will become a form of
improved financial management and monitoring by the state and banks. While they offer more security, they also provide more control and lack of privacy.
I believe this is one of the reasons why decentralized cryptocurrencies are growing more and more popular they offer freedom, autonomy, and financial privacy.
What do you think the future holds for Cryptocurrency and Government control towards investors or ordinary people which invest in Crypto? Tell us in the comment below.
