Central Bank Digital Currencies Are Not Like Bitcoin or Cryptocurrency

摘要： Central bank digital currencies are perhaps one of the most transformative developments in our world financial system currently in development. CBDC are digital assets, but they are not cryptocurrencies and in fact strike at the heart of the very philosophy that brought Bitcoin into existence.

Central banks around the world are competing to be the first to release their central bank digital currencies (CBDC) as the world economy is being reshaped by the challenges of the COVID-19 pandemic. China has been the frontrunner, aggressively piloting its own DCEP (Digital Yuan) and the most powerful central banks including the Federal Reserve and the European Central Bank collaborating on research to assess the positives and negatives of CBDC implementation.

The move by central banks to create sovereign backed digital currencies have accelerated as the cryptocurrency market has matured. Ethereum is no longer the hypothetical flaccid unused base layer blockchain but instead finds itself hosting an entirely new ecosystem of decentralized finance. Bitcoin appears to have come even further, after weathering the storm of being labeled a bubble pump and dump scheme, the pioneer cryptocurrency is now being leveraged more than ever in retail use cases and particularly as an institutional hedge.

While these cryptos have been maturing, there is no doubt the real scare for central banks occurred at the announcement of the impending launch of Facebook’s Libra token. While central banks were wary of Bitcoin’s power, the reality is that with less than 5% global adoption, there remained little to fear. Facebook however was preparing to enter the world of finance with their platform already consisting of over two billion users ready to leverage Libra, which would have created a seismic shift in the global monetary system.

Making a comparison between the soon to be launched central bank digital currencies and decentralized cryptocurrency is understandable, but from what we know the core principles behind a CBDC actually run counter to the philosophy of crypto. Bitcoin itself was created as a means to escape the monolithic central banks and debasing monetary policy of the Federal Reserve in reaction to the 2008 global financial crisis. BTC and crypto are a way to escape the banks and hedge against the loss of spending power in cash. CBDC is playing for the other side, desperate to maintain the oligopoly of the world's banking system.

Crypto VS CBDC—What’s the Difference?

Centralized Vs Decentralized

The first and most obvious critical difference between a cryptocurrency like Bitcoin and a CBDC is one is decentralized, and the latter is very centralized.

Cryptocurrencies are supported by numerous distributed nodes that are incentivized through block rewards to maintain the network. CBDC is supported by one central network, driven to serve only the public policy of the sovereign state that issues them.

Having central banks in control will mean more central bank decisions, which is what has brought us to this precipice of having to reconsider our global financial system. As has been the case throughout COVID-19, central banks are likely to focus on one issue while ignoring another, perhaps focusing on creating employment and buoying the markets while allowing their debt to pile up and without adequately dealing with inflation.

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