Why is CBDC not the same as crypto assets like Bitcoin?

The growth of crypto assets such as Bitcoin and Ether has created a great deal of interest among startups, individuals and governments in the technology behind these currencies. With millions of people becoming interested in the world of crypto assets, it is important to understand the differences between central bank digital currencies (CBDCs) and crypto assets like Bitcoin.

Why is CBDC not the same as crypto assets like Bitcoin?

CBDCs have many advantages and disadvantages. There are countless conclusions based on incomplete knowledge of CBDCs, especially since misinformation abounds and not much information is publicly available about CBDCs launched by some of the world’s economic giants.

What is a CBDC?
A CBDC is a digital currency owned entirely by the state, with no intermediary banks or financial institutions between citizens and the central bank. Fiat currencies, while regulated by the central bank, are not operated directly by the central bank; there are other banks and financial institutions that interface between the central bank and the citizen for all purposes.

While fiat currencies are often traded “digitally” as is cash, they are not “digital currencies” because digital transactions are not independent of fiat currencies. Commercial banks are required to generate (e.g., loans) or account for (in the case of transactions) the necessary legal tender and report it to the central bank. Maintaining the books of these transactions, whether online or offline, is the job of commercial banks. A digital currency like a CBDC, on the other hand, is a true digital entity because it has no physical presence. It is completely controlled by the central bank, leaving commercial banks completely out of the picture.

Thus CBDCs are actually the exact opposite of crypto assets, as they are completely centralized and give government autonomy not only economically, but also in the way people use digital currencies.

Can CBDCs solve financial problems?
CBDCs can solve some financial problems, but not all, and may exacerbate some others, depending on how they are rolled out.

Lower transaction and printing costs

Because CBDC is completely on-chain, with no physical component, the money supply is controlled digitally. In a CBDC world, the cost of printing paper money is eliminated. Commercial banks are also eliminated from the transaction cycle, and overall transaction costs and transaction times can be greatly reduced. Interest rates, financial lending, would all be directly controlled by the state, and the costs associated with this would be reduced.

Counterfeit currency problem solved

Many countries, especially developing countries where criminal groups are active, face serious counterfeit currency problems.In 2016, India launched a “demonetization” program to dismantle the black market that feeds on black money and **.

The success or failure of these programs aside, the problem of counterfeit currency is real and has yet to be fully addressed.

The CBDC will solve this problem by eliminating the printing of banknotes. With all control and power in the hands of the central bank, and with transactions occurring on an immutable blockchain, the counterfeit currency problem is largely solved.

Combating fraud in the banking sector

It is well known that the financial crisis of 2008 was brought about by over mortgage financing by commercial banks, which cascaded into a worldwide financial crisis that led to millions of job losses, suicides, economic depression and serious challenges to economic growth.

The damage caused by the banks by giving them the power to do so was not small. By centralizing money, the problems caused by human error and fraud in commercial banking can be reduced to some extent.

Better data, better analysis, better microeconomic research
In a world where all currencies are digital and the flow of money on the blockchain is entirely in the hands of the central bank, there would never be a problem with access to data, data authenticity, or microeconomic planning and research.

Due to the nature of legal tender and logistical planning obstacles, many experiments in the microeconomic realm are practically impossible. With CBDC this situation is ruled out. Placing currency on the blockchain allows for better research and insight into the economy.

Do CBDCs create some problems?
As a digital currency controlled and backed by the state, CBDC still has many of the problems of a fiat currency. Unlike crypto assets, which do not have a single control or decision maker, CBDCs follow the directives of the state and are an extension of state policy and a tool to achieve their purpose.

Inflation

It is a question mark whether the central government that regulates digital currencies will make the blockchain public. It cannot be fully public due to privacy issues, but at the same time the state has complete freedom and permission to increase or decrease the money supply at will due to the lack of transparency. This means that the fundamental problem of inflation has not been eliminated. It has only changed its form. In fact it is now even easier to increase the money supply because money does not need to be printed. It just needs to be encoded.

Review all you want
This centralization also gives the state permission to monitor every transaction of its citizens, from buying groceries to books to buying companies.

In the future, if the government decides to become totalitarian or wants to push a certain ideology on the people, they can assume full power over the financial system, allowing them the unprecedented ability to censor and ban anything they want because money plays a role in everything that happens in a country.

If the government “programs” money so that it cannot be used for certain transactions, then there is no way for users to get around it.

What about the banking industry’s jobs
This problem arises every time a disruptive technology changes the world we live in. If we do away with banks, what happens to the people who work there, especially CEOs and billionaires? Of course, they won’t disappear.

They will be absorbed into the new system in one role or another. Over the next 10 years, this shift is likely to meet resistance from all corners. People working in the digital economy will need to have different skills than their banking counterparts.

It’s a huge change, and it’s not likely to happen quickly. It’s a cultural change. If government policies change frequently in the meantime, this shift promises to be disruptive.

Cyber Attacks
There is also the issue of cyber attacks, which can invade and disrupt the operations of an entire country. It depends on what technology is used to create the CBDC, but if there is even the slightest possibility of a cyber attack, the currency could face devaluation, cause panic, and lead to unpredictable problems.

In this sense, Bitcoin has withstood everything over the years and is a more stable, time-tested and tamper-proof currency than the new CBDC.

CBDC is not a replacement for crypto assets!
CBDC is the peak of centralization. Crypto assets like Bitcoin are the largest decentralization reasonably possible for humanity. CBDC cannot replace crypto assets and all large economies are hurtling towards their own CBDCs.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/why-is-cbdc-not-the-same-as-crypto-assets-like-bitcoin/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2021-07-01 03:32
Next 2021-07-01 03:34

Related articles