Key Differences: Crypto and Central Bank Money

El Salvador recently became the first country to adopt Bitcoin as a legal tender. While on the other side of the globe, after concluding its love-hate relationship with Bitcoin and other cryptocurrencies, China has taken a bold stance on central bank digital currencies by announcing ambitious plans to establish its digital currency, the digital Yuan (also known as e-CNY). Likewise, the European Central Bank and the Federal Reserve are working together on studies to assess the benefits and drawbacks of CBDC implementation.

The implementation of CBDC, besides Bitcoin adoption, has been one of the hottest discussions all over the world by the nations that wish to move forward in this direction. What is the difference between today’s popular cryptocurrencies and future central bank digital currencies that have not yet been released? Is either solution decentralised, and if not, who will rule the world?

It is essential to know and understand the differences between the two, and that is what this article aims to show to the readers.

What is cryptocurrency?

A cryptocurrency is a virtual currency represented by an encrypted data string. ‘Blockchain’, a peer-to-peer network, oversees and organises it, as well as serving as a secure log of transactions such as buying, selling, and transferring. Cryptocurrencies, unlike real money, are decentralised, meaning governments or financial organisations do not issue them.

Bitcoin, Ethereum, XRP, Dogecoin, and Cardano are among the most popular cryptocurrencies.

Benefits of holding cryptocurrencies

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How about the risks?

What is CBDC?

CBDC, or Central Bank Digital Currency, is a virtual representation of a country’s fiat money that is represented by an electronic record or digital token. A CBDC is a centralised currency, meaning it is issued and regulated by the country’s monetary authority. Several countries are investigating the feasibility of establishing and issuing CBDCs, although no country has done so formally.

Benefits of implementing CBDC

How about the risks?

As we have seen in their given definitions, a cryptocurrency’s blockchain type is decentralised while CBDC is centralised—and there are more than a few differences that we were able to see above. Below is the summary of all the pointers mentioned earlier.

The Differences Between Cryptocurrency and CBDC

 

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