The Truth about CBDC
- Why governments are pushing CBDC
- What are the benefits of CBDC
- What are the disadvantages of CBDC
- What are the things you need to keep in mind before using CBDC?
Why does the govt love CBDC?
After the crypto boom a few years back the governments saw that blockchain technology was here to stay and it was a valid threat to the current financial system
The problem with cryptocurrency right now is that it is volatile. For more people to adopt it, it has to be more stable.
The other problem is that most of the crypto is not actually decentralized and most of the projects don't see daylight and the ones that don’t end up not performing up to expectations or are scams.
The governments of the world saw this chaos and thought of a strategy. Why not implement a blockchain currency that is based on the existing fiat currency?
CBDC or CENTRAL BANK DIGITAL CURRENCY is a form of currency that exists in a private blockchain hosted by the Govt. On what consensus mechanism it will work is not clear but as they don't have to be transparent with any of the reasonings it's safe to assume that it's not a decentralized type of protocol.
Advantages
CBDC’s are rolled out as the new form of currency and hence is an upgrade considering the existing fiat-based currency. The comparison below will be helpful to convince you.
As you can see that there are legit reasons why the CBDC can gain traction with the general public
The way things stand right now you need to be of a certain standards for banks to consider you as a customer. The govt has made strides to help the poorest of the poor people get a bank account through initiatives but the barrier of entry is a bit steep for that certain population.
With the arrival of CBDC the parties do not necessarily need a bank account, they just need a centralized wallet application that can be configured in any language and can be made very simple for the general masses.
- This way the poorest of the poor will be able to have a Bank account without having a bank in between.
As we all know CBDC’s are tracked by the govt and this gives them unprecedented power to follow and monitor any transaction including illegal and things that hinder national security.
- Money laundering and terrorism sponsorship will take a huge L
One of the best parts about the CBDC is that it can be used to transact money between different countries with minimal charge, unlike traditional finance. The Swift network is currently used by more than 70% of the world and this is slow in comparison to what the new tech can do. The link to how the current financial transfers take place across countries is given below
How the SWIFT Banking System Works
Disadvantages
As one can guess CBDC does have its drawbacks and its not on the technology front, it's on the privacy front
- Whether you buy milk from the grocery store or weed from your local dealer you can always be sure that these transactions are being watched. Hopefully, they don't get the attention.
- The govt can freeze or wipe out assets from your wallet if the govt sees you as a bad actor.
- The govt can program your money to be used in a specific way.
eg - Say you want to save Rs10 for this month. The govt thinks that they need you and other people to spend more to stimulate the economy during a recession, With CBDC the govt can program your money to expire like a PhonePe voucher that cannot be used again. So you can either spend they money or lose it forever.
This literally means that the money you worked so hard to earn will never be yours and you can easily be pressured into doing things the authority wants you to do.
Conclusion
As time moves forward we are blessed with innovative minds that give us something to make our mondain lives easier to live in. One of the greatest financial gifts to this world in this century was the invention of the bitcoin by Satoshi Nakamoto.
A truly decentralized technology that gives its users power that cannot be censored on the basis of personal bias. But the tech has been highjacked in the sense that similar tech has appeared and is used by the Govt for all the purposes that Bitcoin stands against.
The rolling out of CBDC is inevitable but the power it holds falls on the people who use the Technology. If no one used Bitcoin then the value of bitcoin would have been Zero and that is exactly the way to protect one's sovereignty when CBDC is rolled out.
The fewer people that use it the more inefficient it becomes to maintain. The govt will incentivize the masses to use the new technology and the adoption rate is likely to increase because of the false convenience it provides, A better analogy would be the Trojan Horse or a wolf in sheep's clothing.
All the good things CBDC conceived have been overshadowed by the negative things and rightfully so. It just goes to show you that the tech was never the problem but the people behind it was, be that it be an individual or a government.
