Central banks all over the world, including the Federal Reserve in the United States have been considering the development and circulation of a central bank digital currency (CBDC). This has led to a lot of speculation about how it might affect independent cryptocurrencies, especially for cryptocurrency fans and crypto skeptics. If you’re new to the world of crypto, here’s what you need to know about the potential implications of CBDC.
The Premise of a Central Bank Digital Currency
A CBDC would be a blockchain-based digital currency, but with a few major differences. It would be centrally controlled by a central bank, rather than democratically controlled by users. Additionally, it would be backed by the full power of the federal government. This might mean that traditional monetary and financial institutions would become obsolete, and other types of crypto or cash transactions could be criminalized.
Proponents of a CBDC believe it would be a step forward in terms of currency security and technological advancement. Skeptics, however, think it would lose many of the advantages of standard crypto and give the government too much control over our lives.
Why Bitcoin and Other Crypto Still Matter
If a CBDC is moved forward, conventional crypto enthusiasts can rest easy knowing that other types of crypto will still be relevant. Blockchain-based transactions are inherently safer than cash, card, or conventional digital transactions, plus there are other advantages such as privacy and sound foundations that digital currencies can’t offer. Additionally, competing cryptos could keep a CBDC in line.
The Shaky Foothold of CBDC
Right now, only 16% of Americans support the idea of a CBDC. Reasons for this include distrust of digital currencies, distrust of the federal government, lack of understanding, and uncertainty. If the majority of the population resists it, the government will not be able to move it forward.
A Vision for Coexistence
It’s possible that CBDC can coexist peacefully alongside various other cryptocurrencies, as we’ve already seen with exchanges occurring despite the presence of a centralized official currency. Policymakers have made no firm statements about whether the introduction of a CBDC would prompt the criminalization or stricter regulation of other cryptocurrencies, which is a positive sign.
The Possibility of a CBDC Takeover
There’s also the possibility of a total CBDC takeover, in which other coins become obsolete or unusable. This could happen if a CBDC is practically superior and promoted by the federal government, if it receives mainstream acceptance, or if stricter regulations are imposed.
The good news is that because the government needs people to accept a CBDC, it’s unlikely they’ll take extreme measures so soon. It’s hard to say exactly how CBDC introduction could affect cryptocurrency, but for now, conventional crypto enthusiasts can rest assured that it isn’t likely to have a big impact.
