The concept of central bank digital currency is based on cryptocurrencies


In late 2017, China launched a trial phase in which it issued its first CBDC, effectively paving the way for the country’s Central Bank Digital Currency (CBDC) implementation. Platforms have a robust algorithm that performs the research for bitcoin traders and makes trading easy. ( Also, it has helped many beginners to get started with bitcoin trading. Other countries are following suit, with Sweden placing a future version of the Central Bank Digital Currency (CBDC) on the agenda. So, if you are planning to trade Bitcoin, you may consider knowing about the Bitcoin Blockchain Record

 Though Finance has historically been an industry that operated within certain strict boundaries and could have conducted without question, this is not the case anymore. In the past ten years alone, Finance has evolved from a field where individuals worked to achieve specific tasks with limited communication to an industry that can have utter management through technology through artificial intelligence.

 The main aim of the Central Bank Digital Currency is to bring together all of the concepts involved within Finance, banks, and technology in a single platform. The idea encompasses blockchain technology, with smart contracts running on the forum.  

There was no better way for China to start than by creating its digital currency (similar in method and working capacity to Bitcoin). This characteristic means there is less chance of fraud or theft as no trusted third parties are involved; therefore, you can be sure that transactions will be secure and unbreakable. There is a lot of positive and negative speculation surrounding the implementation of a CBDC; some say it will become the standard of future currencies, while others believe that in its current form, it is ungovernable and will never be adopted worldwide.

Dangers Associated with central bank digital currency:

China’s digitized currency could create an economic crisis due to its lack of liquidity or cause massive chaos within the market if someone were to hack into its system and sabotage trading, per a few reports. In addition, another rumor is that this could threaten the global currency, leading to instability and creating panic in the economy.

The debate regarding the benefits of central bank digital currency:

The discussion on whether central bank digital currency will achieve its aim of bridging Finance, technology, and blockchain, is still ongoing. There needs to be more consensus, which could significantly impact how quickly different countries and companies adopt it within the sector.  

What are the pros of CBDC?

Central Bank Digital Currency has several pros when compared with other frameworks. The framework for CBDCs makes it much safer than any blockchain-based system, as a third party cannot tamper with the data. Other pros include:

  1. Fraud Prevention: Digital currency is much more secure and fraud-resistant when compared to other Blockchain-based systems; therefore, people trust them more than fiat currency. Deposit in Central Bank Digital Currency (CBDC) is insured; hence, there are no reasons why people would not trust the CBDC. The value of Central Bank Digital Currency (CBDC) will be fixed and will not rise or fall sharply like other forms of Cryptocurrency such as Bitcoin
  2. Stability: Digital currency has a fixed value and will not fluctuate or change in value like other forms of cryptocurrencies. Cryptocurrency is subject to hyper volatility, meaning the prices of digital currency rise and fall rapidly. It can cause a lot of uncertainty to investors, as it is difficult to predict whether the digital currency will rise or fall in value. However, Central Bank Digital Currency (CBDC) has sufficient liquidity and will always be worth the same amount as it stands at present.
  3. Reduction in transaction costs: Transactions over the Blockchain network incur a fee. In addition, governments will be able to control the Central Bank Digital Currency (CBDC) framework, ensuring that they can regulate it effectively and prevent any illegal activities from being conducted on its system.

How is CBDC based on the concept of cryptocurrencies?

CBDC is based on the concepts laid by current cryptocurrencies such as Bitcoin. They are both based upon Blockchain technology, they use Proof of Work (POW) as a consensus-saving mechanism, and the methods of verification and security are broadly similar. Remember that the consensus mechanism is not available in central bank digital currencies. Although CBDC has been proposed as a digital currency issued by the Central Bank, it can never replace actual fiat currencies. Since both have 

How are central banks taking an interest in CBDC?

Central banks have taken a keen interest in CBDC, and it is due to the various benefits associated with it. The benefits include more liquidity for the financial system, reduced transaction costs, and eliminating intermediaries. Furthermore, to ensure that CBDCs are sustainable, trusted institutions will be involved with CBDCs.

Japan is one country that has taken an early lead in implementing a central bank digital currency. In March 2022, it introduced BaaSH (Bank’s Central Bank Digital Currency), which involves five banks working together to develop a digital fiat currency issued by The Bank of Japan. This intention is to reduce barriers within cross-border payments and cut back on costs associated with international transactions.

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