The development of crypto assets such as Bitcoin and Ethereum has created a huge interest in the technology behind these currencies among startups, individuals and governments. As millions of people become interested in the world of crypto assets, it is important to understand the difference between central bank digital currencies (CBDC) and crypto assets such as Bitcoin.
What are CBDCs?
What are CBDCs?
A CBDC is a fully state-owned digital currency with no intermediary banks or financial institutions between citizens and the central bank. Fiat currencies, although regulated by the central bank, are not directly operated by the central bank, there are other banks and financial institutions that interface between the central bank and citizens for all purposes.
While fiat currencies are as frequently traded as cash"number"digital currency"digital currency", because digital transactions are not independent of fiat currencies. Commercial banks are required to generate (eg loans) or account (in transactions) the necessary fiat currency 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 existence. It is completely controlled by the central bank, completely excluding commercial banks.
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Can CBDC solve financial problems?
A CBDC could solve some financial problems, but not all, and might exacerbate others, depending on how it is rolled out.
Reduce transaction and printing costs
Since CBDC is entirely on-chain, with no physical part, 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, will be directly controlled by the state, and the costs associated with this will also be reduced.
Counterfeit currency problem solved
Many countries, especially developing countries where criminal groups are active, face a serious counterfeit currency problem. In 2016, India launched"Demonetization"plan to disintegrate the black market that lives on black money and corruption.
Regardless of the success or failure of the aforementioned schemes, the problem of counterfeit currency is real and has not been fully resolved.
A CBDC would solve this problem by eliminating the printing of paper money. With all the control and power in the hands of the central bank and transactions happening on an immutable blockchain, the problem of counterfeit money is largely eliminated.
Fighting Fraud in the Banking Sector
As we all know, the financial crisis in 2008 was brought about by the excess mortgage financing of commercial banks, which led to a worldwide financial crisis, resulting in millions of unemployment, suicide, economic depression, and serious challenges to economic growth.
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Better Data, Better Analysis, Better Microeconomic Research
In a world where all money is digital, the flow of money on the blockchain is completely in the hands of central banks, and there will never be issues of data acquisition, data authenticity, and microeconomic planning and research.
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Will CBDC create some problems?
inflation
inflation
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review all you want
This centralization also gives the state permission to monitor every transaction its citizens make, from buying groceries and books to buying companies.
In the future, if governments decide to be totalitarian or want to push a certain ideology onto the people, they can assume full power over the financial system, allowing them an unprecedented ability to censor and ban anything they want because of money play a role in everything that happens in a country.
If the government conducts currency"programming"secondary title
what to do with a job in banking
This question arises whenever a disruptive technology changes the world we live in. If we eliminate the banks, what will happen to the people who work there, especially the CEOs and billionaires? Of course, they're not going away.
They would be absorbed into the new system, taking on one role or another. Over the next 10 years, this transition is likely to meet resistance from all corners. Those working in the digital economy will need to have different skillsets than their banking counterparts.
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Network attacks
There is also the issue of cyberattacks, which can invade and disrupt the functioning of entire countries. It depends on what technology is used to build the CBDC, but if there is even the slightest possibility of a cyber attack, the currency may face devaluation, cause panic among people, and cause unpredictable problems.
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CBDC is not a substitute for crypto assets!
Compilation: Bibabu
Original: hackernoon
Compilation: Bibabu
