Why a CBDC Is Not A Threatening to Bitcoin

Melis
BLOCK6
Published in
4 min readJun 29, 2022

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Over the last few decades, man has come to digitize many services and tools: from cash, to communications, to remote working, to delivery services, to banking services, etc.

The two digital projects that we are going to talk about in this article came from the world of finance: Bitcoin and CBDCs. The time has come to deepen this topic that many people see as rival of Satoshi Nakamoto’s “creation”: Central Bank Digital Currencies.

What is a CBDC

CBDC stands for Central Bank Digital Currency and indicates a new form of money, a fully digital currency issued by a Central Bank (such as the European Central Bank in the case of the euro, or the Federal Reserve for the dollar).

Very often people find it difficult to understand the difference between a CBDC and the current form of money, because today most of the money is circulating in digital form. American data for example show 11% of physical money out of a total of approximately $14 trillion (M2).

The CBDC project is something that goes far beyond digital payments: a CBDC is a new type of fiat currency over which the Central Bank has more power.

Let’s imagine a CBDC model in which every citizen is equipped with a digital wallet that can be managed via a mobile phone app.

A central bank could have a more capillary control of the monetary base : it could easily issue new money, for example in a limited geographical area in order to counter local crises or burn money supply in order to reduce inflation by directly altering the electronic balances of the areas most affected by inflation.

CBDCs would influence not only monetary policy, offering central banks tools never before had in history, but also payment systems.

Among the objectives of the CBDCs is to create a protocol based on DLT, Distributed Ledger Technology, that guarantees faster payments, especially with regard to cross border payments.

What Are the Differences Between Bitcoin and a CBDC?

For those who already know Bitcoin, the real question arises naturally: is there something in common between BTC and CBDCs? The answer is NO.

Bitcoin is a totally different tool from CBDC from any point of view.

Bitcoin protocol is open source, developed without the presence of a coordinator who can dictate the changes to the software, currently proposed through BIPs (Bitcoin Improvement Proposal) that can be freely adopted by users who will upgrade or not their Bitcoin nodes.

A CBDC, looking at the path adopted by China, involves a central regulator that establishes the rules of the protocol.

The three cardinal principles of the Bitcoin protocol are:

  • Borderless: Bitcoin network knows no borders and it is the first truly neutral payment network;
  • Trustless: You don’t have to trust the components of the system which will not be able to attack you in any way, the system is also based on redundancy and competition between miners, making a coordinated attack difficult;
  • Permissionless: You won’t need anyone’s permission to use the Bitcoin protocol. Whether you are an American citizen, an undocumented refugee, a political prisoner or a farmer from Venezuela, you will always be free to exchange BTC with whomever you wish.

In a CBDC there is not even one of those three characteristics:

  • Trust in the system will increase, as the greater the power available to the central regulator, the greater the damage it can do through this Orwellian tool;
  • CBDCs cannot be borderless by definition as they are linked to states, governments or federations. We saw the use of payment circuits including Visa, Mastercard but above all SWIFT as a weapon between states;
  • In a CBDC system you will hardly be able to open a virtual wallet without providing your identity documents to the system responsible for KYC / AML (Know Your Customer / Anti Money Laundering), the permissionless component is absolutely incompatible with a CBDC model.

In addition to the technical differences, Bitcoin protocol has another substantial difference: monetary policy.

Bitcoin is defined as hard money due to its inflexible monetary policy, there may be a maximum of 21 million units and their issue is established by a precise algorithm.

Are CBDCs a Danger to Common People?

After explaining the differences between the two protocols, it is clear that Bitcoin and CBDCs are two completely different projects: the latter are an absolute evil, a new tool in the hands of governments that will thus be able to increase interventionism on monetary policy, with devastating economic and social consequences.

One of the most worrying issues is certainly that relating to privacy, especially if the birth of CBDCs is accompanied by the abolition of cash.

If we were to arrive at a CBDC-based cashless society, more and more people will understand the importance of a protocol like Bitcoin, which doesn’t discriminate and guarantees anyone the freedom to transfer value, freedom necessary for the survival of an individual.

But it is not only Bitcoin users who consider CBDCs a privacy problem, just read for example this PwC publication or statements by Senator Cynthia Lummis during a panel at the Bitcoin Conference 2022.

Bitcoin is therefore confirmed as a fundamental human right in order to guarantee financial freedom and fight digital surveillance, an increasingly real scenario in our society.

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Melis
BLOCK6
Writer for

MultiSignature, MultiUser, MultiDevice Bitcoin, Bitcoin Cash, Dogecoin, Litecoin, Bitcoin SV, BCHA, Groestlcoin Wallet: https://www.melis.io/