"Exploring the Differences: Public Crypto vs Central Bank Digital Currencies (CBDCs)"
Cryptocurrencies, also known as digital tokens, have been gaining traction as an investment avenue since the creation of the Bitcoin blockchain in 2009. These tokens offer increased security, transparency, and inflation protection, making them an attractive option for investors. However, with the rise of public digital currencies like Bitcoin, central banks are now also exploring the possibility of launching their own sovereign-backed virtual currencies called Central Bank Digital Currencies (CBDCs) based on Blockchain technology.
While both CBDCs and public crypto assets like Bitcoin and Ethereum use Blockchain technology, there are key differences that set them apart. CBDCs will be issued and stored by a central authority while relying on Blockchain's time-stamped record blocks to encrypt transaction activity and verify them using network participants. This characteristic makes CBDCs more tenable as a payment token and legal tender and therefore aims to make transactions safer than even commercial bank-issued digital money. Additionally, the value of a CBDC is directly linked to the nation's fiat currency, making it less volatile and less susceptible to market fluctuations.
On the other hand, permissionless digital tokens like Bitcoin and Ethereum are maintained in decentralized public ledgers that are borderless and not fully subject to regulatory oversight. These tokens have become a choice of investors only recently, and the value of these tokens in the secondary markets is prone to higher market volatility. Additionally, investors are also susceptible to fraud, hacks, scams, and market manipulation.
However, crypto also has unique use cases that are revolutionizing the way the world is transacting today. One key example is Ethereum, which is supporting a fast-developing ecosystem of decentralized apps and smart contracts that are facilitating the rise of crypto assets like Non-Fungible Tokens (NFTs) today. With many new cryptos having unique use cases being introduced, the global crypto market has grown substantially over the past few years.
In conclusion, while both CBDCs and public crypto assets have their own set of advantages and challenges, they both have the potential to shape the future of finance in different ways.