Bitcoin vs CBDC: An Interesting Comparison
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The difference between Bitcoin and Central Bank Digital Currency (CBDC) is crucial in the modern digital environment. Simply put, Bitcoin is a digital asset, whereas CBDC is the digital equivalent of fiat cash. We’ll look at an interesting comparison between the two in this article.
Financially, the world is moving towards greater digitalisation. We must therefore understand the distinctions between the various online financial sources available, particularly Bitcoin and CBDC, if we are all to succeed financially.
Recently, CBDC and Bitcoin have attracted a great deal of interest. Let’s explore their similarities and differences to determine which is best for you.
What is Bitcoin?
Cryptocurrency, such as Bitcoin (BTC), is a virtual form of digital money that serves as a method of payment. Money alone isn’t everything. Instead, think of it as a digital asset that you can also utilise for investing.
Its functionality is designed to be independent of any person’s ability to modify it.To ensure this, a public ledger contains a record of each Bitcoin transaction, and numerous users on the Bitcoin ledger have verified it.
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What is the central bank digital currency (CBDC)?
A CBDC is simply fiat money in digital form. You can think of it as a digital fiat. Most fiat transactions nowadays are digital, so you may wonder how CBDC is any different from what we do with our money right now.
However, fiat currency is a combination of physical cash and online transactions, whereas CBDCs are entirely digital. This implies that the government will have far more control over them. Despite being digital like Bitcoin, a CBDC shares none of the principles of cryptocurrencies. Bitcoin is trustless, decentralised and permissionless. CBDC is not.
That said, let’s dive a little deeper into some more significant differences between Bitcoin and CBDC.
Further reading: Central Bank Digital Currencies: All You Need To Know
Bitcoin vs CBDC: Understanding the important differences
The best-known cryptocurrency is Bitcoin. Bitcoin gave people their first glimpse of what the future of finance could be like. It was the first decentralised digital asset to achieve wide acceptance and is still the dominant cryptocurrency in the world. There is a good reason for all of this. The function of Bitcoin and the principles it was built upon make it appealing. This explains why, despite the presence of other alternative cryptocurrencies, Bitcoin is still used worldwide.
Nowadays, governments are seeking to match these benefits with CBDCs. However, fundamental distinctions between the two technologies, such as the ones mentioned below, will always exist.
1. Anonymity
With CBDCs, you don’t remain anonymous. Since CBDC serves as a substitute for cash, all your information is shown next to your CBDC asset. Your information will be made available to the central bank when you transmit and receive CBDCs.
Unlike CBDCs, Bitcoin assets are not issued and stored centrally. Therefore, Bitcoin transactions keep your identity hidden, but the transactions you make are available to the public for added security.
2. Speed
Central banks or authorities can take several days to clear CBDC transactions. Bitcoin transactions are usually faster than traditional bank transfers. Bitcoin users complete transactions rather rapidly on the public ledger. Someone in the Bitcoin database receives their payment within minutes of you sending it to them.
3. Cross-border payments
CBDCs can make cross-border payments effectively. However, various countries have different legal and regulatory frameworks. As a result of having to comply with these regulations, moving money internationally is much more challenging.
The same doesn’t hold for Bitcoin. You can send and receive money anywhere in the world without worrying about additional regulations. Your digital assets are yours to send wherever you want.
4. Transaction charges
Transaction fees for CBDCs might be the same as the expensive transaction fees we now pay for our fiat money.
Bitcoin transactions typically include minimal or no fees.
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5. Freedom of choice
The central bank or government is heavily involved in CBDCs and imposes strict rules for citizens to follow when managing and utilising their own funds.
In contrast, Bitcoin is not under the control of any government. This means that if you own Bitcoins, you can access them directly from any location at any time. Furthermore, payment transactions are possible using wallet addresses, and your cryptocurrencies are protected by encryption and cryptography. This also implies that you are not required to disclose personal information to access or use your digital money. Therefore, compared to CBDC, Bitcoin offers you more flexibility in terms of how you decide to keep and use your digital assets.
6. Use cases
CBDC has limited usage. You can only use CBDCs for payments and other financial transactions.
On the other hand, Bitcoin is a diverse digital asset. You can use it for payments as well as for investing and speculation.
7. Scalability
Compared to cryptocurrencies such as Bitcoin, CBDCs might be able to scale a little bit better due to their efficiency, lower costs, increased security, and potential for financial inclusion, backed by government support and evolving technological infrastructure. They approach databases greatly because they are built on credentials, although they have not yet been tested CBDCs are not yet accepted internationally, and therefore only time will tell if they can scale.
8. Illegal activity
The fact that CBDCs are digital and not anonymous may help to decrease illegal activity and allow for surveillance. A central bank can use encryption to follow the money to a specific area. Both criminal activity and illegal transactions can be reduced as a result.
This is an area where Bitcoin lags behind, since it has such a high level of privacy.
9. Security
Since you are not anonymous with CBDC, scammers can hack and utilise your financial information illegally.
Bitcoin is considered safer and more secure than Central Bank Digital Currencies (CBDCs) due to its decentralized nature, cryptographic security features, and immunity to centralized control or manipulation.
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Bitcoin vs CBDC: The road ahead
When comparing Bitcoin to CBDC, we can understand that its popularity is not without cause. It has several benefits.
Because Bitcoin is a decentralised cryptocurrency, many people have doubts. The fact that Bitcoin was unrelated to anything and was not managed by a bank or other centralised authority was seen as a red flag. But as experience has proven, Bitcoin has several layers of security built in because of blockchain technology. What makes it secure is the community.
Even the original creator and supreme authority, Satoshi Nakamoto, had no desire to keep holding that position. Instead, he wanted to create a system that was fair to everyone and free. He was, therefore, able to launch a virtual coin.
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