Central Bank Cryptocurrencies (CBDC): Are Country-Backed Blockchain Assets The Future?
CBDCs, or Central Bank Digital Currencies, became one of the most-discussed topics in 2018. They came to be as Venezuela's attempt to fix its economy after inflation took place and left it in ruins. As such, many saw it as a solution that can be used for fixing failing economies, and other countries started considering it.
Soon enough, several new questions emerged — can every country implement it? Should every country implement it? Are CBDCs going against everything that crypto stands for due to their centralization, or are they a new form that can carry this ideal and reach crypto adoption in a different way?
Finally, experts looked at possible implications of every country going for such a solution and tried to imagine a future where every country has its own crypto.
What Is CBDC?
As the name suggests, Central Bank Digital Currency is crypto that is issued and controlled by a central bank. There are also cases where the same name is used for cryptos issued by federal regulators and even entire governments. Simply put, it is a “homegrown” digital currency that is to be used for the purpose of a specific country.
While regular cryptocurrencies still lack regulations that would allow them to get adopted, CBDC could fix this issue with relative ease. They could easily be regulated by the country, since they are centralized, and can be controlled by a single governing body that the country would find trustworthy.
Venezuela's economy suffered a lot in recent years, and as cryptos started growing and becoming popular, the country was desperate enough to try implementing them as a new solution to their problems. Before long, they came up with a CBDC by the name of Petro, which is backed by their national oil reserves.
Once the coin was finally launched in February of this year, everyone thought that it will save the country and allow its citizens to lead normal lives. However, the currency is surrounded by a lot of controversies, with some even going as far as to call it a scam. Crypto community judged it for being centralized, and in the end, Petro had a lot of valid criticism to face.
While this may not have been the best attempt at launching a CBDC that would save a country, the concept still remains quite interesting.
CBDC Pros And Cons
Now that we understand what CBDCs really are and how might they work, it is time to see what do they have to offer, as well as what might the downsides be.
The pros of CBDC make this idea quite attractive. It can help with:
- Boosting the economy
- Stabilizing economies that are threatening to collapse
- Creating regulations for the crypto industry
- Providing quick and easy access, as well as confidence in crypto
As stated, pros make this concept really interesting and attractive. However, there are also downsides to it, which should be kept in mind as well:
- Setting them up is very costly
- Users will not have the financial privacy that Bitcoin and other cryptos provide
- It might negatively effect developed countries that already have a satisfying financial system in place
What Is The Future Of CBDCs?
Right now, there are only a handful of countries that are using CBDCs. Those include Venezuela, Tunisia, Senegal, and the Marshall Islands. Even so, a lot of other countries such as Iran have been looking into them, mostly for similar reasons as Venezuela.
Banks are also willing to try and issue their own currencies, as they are afraid of losing the battle against cryptos and being left behind. On the other hand, they still don't trust digital currencies enough to actually adopt them. Launching their own crypto would mean keeping up with this technology, but still remaining in control, which is why many of them choose to go for this solution.
In the end, nobody can tell what will happen in the future. Maybe CBDCs become a common ground or a bridge between the two worlds. Perhaps they will turn out to be not good enough, and the whole idea will be dropped. This is still unexplored technology, which is why we currently have more questions than answers.