CBDCs: Do they pose a threat to Cryptos?

Source

What are CBDCs?

Do CBDCs pose a risk to the cryptocurrency ecosystem?

  • CBDCs are digital equivalents of their fiat counterparts, are centralized, and their supply is controlled by the central banks. Cryptocurrencies, on the other hand, present an alternative mode of payment away from the prying eyes of the state. The supply of most cryptocurrencies is either fixed or programmed to be deflationary.
  • Cryptocurrencies are at a more advanced stage of development than CBDCs, still grappling with infrastructural and cybersecurity issues. Cryptocurrencies deploy the available infrastructure of the network of computers to preserve a decentralized database of transaction history and records, while CBDCs will still be prone to single points of failure.
  • Cryptocurrencies aren’t just a good store of value; they can be securities, assets, or tokenized shares of a company, while CBDCs will be meant only for retail monetary transactions. Cryptocurrencies also allow holders to earn passive income or enjoy platform utilities and perks. Use cases for cryptocurrencies and other kinds of digital assets are immense and beyond the scope of a CBDC.
  • CBDCs are still under evolution and finding answers to issues such as interoperability and cross-border payments. Some CBDC bridge initiatives like the Dunbar project have come up, but these aren’t enough to tackle the issues at a global level. Cryptos, in contrast, is borderless, and many crypto platforms such as Chainlink and Polkadot have come up with interoperable cross-chain solutions.
  • Privacy is the greatest concern for CBDCs. Instead of financially including the masses, the state can use CBDCs as a tool for mass surveillance first and then can use the information to deny certain people inclusion in the financial economy.

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Dr Vin Menon

Dr Vin Menon

A blockchain enthusiast and entrepreneur’s musings on the next big revolution since the Internet.