
CBDCs are NOT Cryptocurrencies
A lot of news lately about countries looking to issue Central Bank Digital Currencies (CBDC).
A lot of news lately about countries looking to issue Central Bank Digital Currencies (CBDC). It is important to understand, however, that CBDCs are NOT cryptocurrencies. CBDCs are a digital form of fiat currencies. So while CBDCs and cryptocurrencies are both “digital assets,” they differ in key characteristics:
Definition: Cryptocurrencies are decentralized digital assets stored on public and permissionless blockchain networks. CBDCs are blockchain-based digital currencies issued by a central bank.
Decentralization: On CBDC networks, a central bank decides the rules and has the authority to change them anytime. On crypto networks, the authority is delegated to the user base, and decisions are made by reaching a consensus. (e.g., Proof of Work or Proof of Stake)
Blockchain type: CBDCs use permissioned (private), centralized blockchains. Cryptocurrencies use permissionless (public), decentralized blockchains.
In conclusion, while this is an overall progressive move by central banks towards digitizing banking, CBDCs are quite different from cryptocurrencies in both characteristics and use cases.