Central Bank Digital Currencies are Right Around the Corner

Central Bank Digital Currencies are Right Around the Corner

What was once speculation is now becoming a reality. Central banks around the world are exploring the option of a digitally tokenized alternative to their respective fiat currencies. Some countries are still in their research stages, while others have already deployed their Central Bank Digital Currencies, or CBDCs. In this article we will be taking a look at CBDCs: What they are, why they are being developed, and the potential impact CBDCs will have on cryptocurrency and the economy.

What are CBDCs?

CBDCS are fiat currencies which are derived from cryptocurrency technology. Unlike cryptocurrencies, CBDCs are completely centralized and controlled by the central bank. While the implementation of CBDCs will simplify many aspects of monetary and fiscal policies, many are concerned about CBDCs eroding the privacy of citizens through financial inclusion.

In some respects, CBDCs originate from the introduction of cryptocurrencies; however, their shared technology – which allows for simplified and direct peer to peer transfers – is used in a completely opposite manner. CBDCs are the flip side of the coin so to speak, compared to cryptocurrencies. CBDCs use the same consensus mechanisms as cryptocurrencies to create a highly centralized monetary system, placing 100 percent control of the tokens in the hands of the government. Although cryptocurrencies do not pose much of a threat to current financial infostructure at the moment, they do have the potential to eventually disrupt the existing fiat system. It is conceivable that central banks are ramping up the development of CBDCs to preempt this possible eventuality; although, it is more likely that CBDC development is more greatly fueled by the desire to create a debtless currency to operate in conjunction with fiat.

CBDCs are yet to make their way into the common knowledge of the general public; however, they are already causing a stir amongst those within the finance space, who are in the know. This is because CBDCs would make it incredibly easy for the government to track every transaction on the network. Furthermore, countries which have deployed CBDCs could potentially tax their citizens automatically, without consent. The central bank could even go as far as to deny access of personal funds to individuals within the CBDC network.

Who is Developing CBDCs?

Currently, 81 countries around the world – representing 90 percent of global GDP – are pursuing the development of CBDCs. Some countries have already deployed their CBDCs. Not every country is developing CBDCs at the same rate; However, the number of countries exploring CBDCs more than doubled during the pandemic. Some of the most notable nations developing CBDCs are China, South Korea, and Sweden, which are all in their final testing phases of CBDC research. In the United States, the central bank has contracted MIT to design the Digital USD CBDC.

You can find a full list of nations who are developing CBDCs by visiting https://cbdctracker.org/ for more case by case information.

What affect Will CBDCs Have on the Cryptocurrency Market?

At this point, it is difficult to say how CBDCs will affect cryptocurrency. Some people believe that CBDCs will have a negative impact on cryptocurrency; however, any theories surrounding CBDC’s interaction with the cryptocurrency market is purely speculative. It is possible that CBDCs will even have a positive affect on cryptocurrency, as there will potentially be a higher demand for decentralized assets, as people will likely value the asset class, due to its privacy-centric nature. Cryptocurrencies may very well become even more widely adopted by those who are concerned with the security of CBDCs, especially since cryptocurrencies like BTC can be owned, spent, and already have a predetermined monetary policy.

In Conclusion

Regardless of people’s opinions concerning CBDCs, they may become a normal part of everyday life, sooner than we know it.

Killer Whale Crypto