Cryptocurrencies and Central Bank Digital Currencies (CBDC) are hot topics in 2022. With multiple countries set to use their own CBDC, it might start concerning some crypto enthusiasts. With what is happening in the world today with cryptocurrencies, it sometimes feels more like a gamble on point spreads from sports betting websites.
However, people who support crypto don’t see the virtual currency as a gamble, but as a hedge against fiat currencies. We need to examine what each currency is in order to determine the truth.
A cryptocurrency is any digital or virtual currency using encryption to safeguard transactions. Cryptocurrencies aren’t centralized by a regulating authority, depending instead on a decentralized system to log transactions and create new units. The logging system that cryptocurrencies use is called a blockchain.
A CBDC is the digital form of central bank currency that the public can use. CBDCs are developed in multiple nations and will roll out in China and Japan in 2022. CBCDs in each country are backed by their government banking system. While cryptocurrencies and CBCDs seem similar, there are differences between them.
What Are Cryptocurrencies?
Cryptocurrencies, like Dogecoin, are stored on decentralized blockchain networks. The transactions of cryptos are conducted, authenticated, and recorded on the blockchain. Blockchains are public, meaning fraud could be detected if there were any interference by other parties.
Cryptocurrencies are also free from the unlimited printing of money, like a fiat centralized currency would be. Each crypto is decentralized and not attached to any government or centralized banking system. The idea of cryptocurrencies came after the housing crash of 2008. This prompted one person to create Bitcoin, the first-ever cryptocurrency.
The creation of Bitcoin was for people to send money online with ease. Bitcoin was to operate like cash but without the central control of a banking system. However, cryptocurrencies are more expansive in 2022.
Cryptocurrencies are also volatile. The value of any cryptocurrency can rise, or fall, quickly. Some value swings of 30% have been seen within a single day in the cryptocurrency market.
On the safer side of cryptocurrencies, they require you to store your crypto on either a hot wallet or a cold wallet. Hot wallets allow users to spend crypto in that wallet whenever they wish. However, cold wallets allow people to store their digital assets safely.
Cryptocurrencies, while having open ledgers, still provide a slight bit of anonymity to their users. The idea blends both safety and openness with transactions. Those things have made cryptocurrencies a hit with people.
What is a Central Bank Digital Currency (CBDC)?
CBDCs are not cryptocurrencies, meaning there’s nothing related to anything catering to the crypto world with a CBDC. A CBDC is just a digital form of a country’s fiat currency. A CBDC is regulated by a central authority or bank of the country that issues it. The Federal Reserve, for example, would regulate any digital dollar they create.
CBDC assets are issued and stored using centralized banks, keeping the same fiat but in a digital form. You don’t get to remain anonymous while dealing with CBDC, unlike cryptocurrencies. A CBDC is just a replacement for cash, meaning your details are fixed to your CBDC asset. However, transaction details are only available to senders, receivers, and banks that are dealing with the transactions.
One of the primary concerns with a CBDC is a government using them to prevent people from assessing their assets. This is unlike cryptocurrency, where the government can’t flip a switch to restrict you from accessing your money. That makes for one of the tremendous differences between cryptos and a CBDC.
Are CBDCs a Threat to People?
Anyone that knows how governments are corrupted should be worried about a CBDC. While central banks have pushed back on them using a CBDC to cut off a person from their assets, the worry is still there. If a government were to want to keep a person from accessing their money, a CBDC would give them a chance to keep their target from assessing their money.
Anyone that has seen how governments have seized citizens’ assets in the past should approach a CBDC with extreme caution. If they don’t, they might be victims of a government seizure of their assets.