CBDCs, Fool’s Errand, Or Attempt at Control?
The train has left the station, good luck playing catch up.
All over crypto news, news of central bank digital currencies has been gaining momentum this past couple of months despite the government’s onslaught on cryptocurrency.
Over 120 countries are involved in one form of central bank digital currency or the other.
This development brings a couple of questions to mind.
To fully grasp what a central bank digital currency is. We will need to answer six specific questions:
1: What are central bank digital currencies?
2: What is the aim/goal of a CBDC?
3: Are they important?
4: How will they be issued and monitored?
5: What will the adoption be like?
6: What are the differences/similarities with the cryptocurrencies we have come to know and love?
1: What are central bank digital currencies?
Cryptocurrencies have come to be known as the future of money, so it’s no surprise that the federal government wants a piece of the action, the saying: “innovate or die” has never been more true in this situation.
Central bank digital currency or CBDC, as the name implies, can be said to be a virtual form of money that cannot be physically touched or spent and is being issued by the government of a particular country, unlike Bitcoin or Ethereum which are issued by private establishments.
There are two types of CBDC; wholesale CBDC and retail CBDC.
For example, the USA is calling their CBDC a digital dollar.
2: What is the aim/goal of a CBDC?
On paper, the goal of a central bank digital currency is to facilitate financial transactions around the world, to bank the bankless.
But is this the true aim of a central bank digital currency? Or is there some hidden agenda? Either way, the truth will out.
3: Are they important?
The sole purpose of anything created, invented, or innovated is to give value to someone somewhere; to make their lives easier and better.
The importance of a central bank digital currency is in its proposed use case. This use case can be said to be the same as that of the popular cryptocurrency known as Bitcoin; with a little tweak.
4: How will they be issued and monitored?
Earlier, we talked about how we have two types of central bank digital currency; wholesale CBDC and retail CBDC.
Central bank digital currency will be issued and monitored through these two types of CBDC. Wholesale CBDC are targeted at corporations and can be likened to a holding reserve in a central bank.
Retail CBDCs are targeted at ordinary everyday people activities and businesses and are in two categories; Token-based digital currency and account-based digital currency.
5: What will the adoption be like?
Cryptocurrency’s major stumbling block can be said to be government disapproval, and with this out of the way, central bank digital currency will look attractive to people and will feel safe to skeptics because it is being backed by the government.
6: What are the differences/similarities with the cryptocurrencies we have come to know and love?
The major noteworthy difference between a central bank digital currency and a regular cryptocurrency is that cryptocurrencies are decentralized and are highly volatile.
Their value is determined by market sentiments, use case, and user interests while a central bank digital currency is stable and its value is pegged to the issuing country's fiat currency.
The underlying technology is similar, but it is not yet known whether central bank digital currency will make use of blockchain technology or consensus mechanisms.
CONCLUSION
World governments have realized that crypto is not going anywhere, and it’s here to stay, so CBDC is an attempt to play catch up. Whether they will catch up or not remains to be seen.
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