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- 1 Central Bank Digital Currency (CBDC) is a govt-controlled cryptocurrency.
- 2 Though, not purely blockchain, it would surely bring certain elements of decentralization.
- 3 Various countries have rolled out the beta versions of CBDC and many are preparing for it.
Since the advent of crypto, leaders, bankers, and economists have talked about its regulations. After more than a decade of its existence, countries are finally integrating it into their economies. But, it is happening with a version of blockchain that is centralized. Central Bank Digital Currency (CBDC) is the government’s answer to all the crypto advocates around the world. To begin with, the central bank of the country will launch and manage it. It would work like physical money but digitally. Since they’ll be controlled by the government, they won’t function like Bitcoin and other crypto. While a decentralized token keeps its information totally inaccessible to anyone, CBDC will be accessible to authorities. So in many ways, it would be a compromised version of blockchain.
But does that mean that CBDCs are no good? Well, it would be too early and unfair to say that. Because every technology offers something to its target users. And to understand that, it’s essential to understand the pros and cons of this new solution.
Benefits & Drawbacks of CBDC
By understanding the merits or demerits of this technology, one can figure out how its functioning can help.
Heightened Efficacy & Accessibility in Payments
With digital currency, the payment structure will definitely get an upgrade. It would accelerate the speed and decimate the charges too.
Financial Inclusion & Access to Banking Services
For all obvious reasons, CBDCs will get access to banking services. It would bridge the gap between crypto and traditional finance.
Enhanced Transparency & Security For Everyone
The integration of blockchain will result in better transparency and security. It would address many existing issues.
Lesser Risks, Cost, & Hassles of Cash Handling
From printing to transporting, safekeeping, and ATM handling, it would bring down the costs of many things.
Easy Implementation of Monetary Policy
As CBDC eliminates third parties, it makes the implementation of policies very easy. It would save the money and effort of officials.
Drawbacks of CBDC
Risks of Privacy & Cybersecurity
Cryptocurrencies aren’t really impervious to cyberattacks. In fact, they are very vulnerable so the government will have to tighten up the security.
Threat to Banks & Other Intermediaries
CBDC has the potential to peter out the role of banks and other intermediaries. They’re a threat to all the payment processors we currently use.
Challenges to Technology & Infrastructure
The current infrastructure is not entirely ready to tackle digital assets. It may face some unprecedented issues.
Complexity & Regulatory Concerns
Like the infrastructure, the current regulations too, are not framed for them. Thus, they can create a lot of confusion.
Conclusion
CBDCs, with all their pros and cons, can bring a lot of possibilities. They would certainly beef up our existing system to do better. Plenty of things will get an upgrade and the banking system will see something new. However, no one should expect it to be smooth sailing. This trailblazing solution will certainly bring disruption. It may give us a brief period of discomfort too. But in the end, it could push us towards the betterment of the whole world.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
