What Are Central Banks’ Digital Currencies and Do They Have a Future?
A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain.
Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger.
Blockchains give us new ways to govern networks. For banking. For voting. For search. For social media. For phone and energy grids.
An electronic form of central bank money
Today we can see how the patterns and habits of how payments are made are evolving. Cash is still widely used, although it is dwindling in popularity as other digital payment methods take its place.
As a consequence, more than a quarter of central banks are now creating or operating actual pilot programs related to digital currencies while the majority of central banks are at least investigating central bank digital currencies (CBDCs).
Central bank digital currencies are digital tokens, similar to cryptocurrency, issued by a central bank. They are pegged to the value of that country’s fiat currency.
Cryptocurrency vs. CBDC
Cryptocurrency has a highly functional yet disruptive performance that has already, gradually but progressively, begun to overwhelm the conventional financial sector. By providing quick access to financial and management institutions, virtual currencies tend to enhance economic growth in the global economy, as well as in underdeveloped countries.
Most experts say that CBDCs are more stable than cryptocurrency, as they are fiat, but cryptocurrency has the advantage of being decentralized, trustless and private.
Both cryptocurrency and CBDC are, therefore, quite dissimilar in certain ways, and the debate around them will likely become louder in the years ahead.