Central banks are beginning to race to develop their own digital currencies, but it is important to know that these are not the same digital currencies as cryptocurrencies. Let’s take a look at it.
CBDC can be linked to stablecoins
Many central bank digital currencies that currently exist or are in development are designed around USDT or USDC, which are stablecoins that are pegged to traditional currencies (in the case of both of these stablecoins, the US dollar) and are not as volatile as cryptocurrencies. However, each CBDC has a different design.
CBDCs do not have to be on the blockchain
Some go the route where the central bank is the main issuer, CBDC is distributed to commercial banks and eventually consumers, just like fiat currencies. Others go the route where the central bank is the sole issuer, and the CBDC goes directly to consumers without intermediaries. Further, the technology differs, some CBDCs are digital currencies just by virtue of being a digitized version of a fiat currency, but they are not based on blockchain technology. For most, however, the R3 Corda platform is used, which is a blockchain solution.
Different levels of adoption and development
The development of CBDC is taking place in many places and almost every government or central bank seems to be interested in this development. While development is underway, there has still not been universal adoption. The reasons may be varied and there are not a few. In countries where promising technologies are welcomed, CBDC has caught on somewhat better than elsewhere (e.g. China, Korea or Singapore).
Translated with www.DeepL.com/Translator (free version)
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There has been a lot of positive news surrounding CBDC in recent months. Governments are trying to keep up with cryptocurrencies and compete with them in some way, and digital currency is a perfectly logical step, as cash had almost no use during the pandemic-related shutdowns. However, we need to know how CBDCs are set up and how they will work so that people can freely decide whether to accept them or resort to other alternatives to the financial system.