Central Bank Digital Currencies or CBDCs have become the subject of discussion since years ago. The idea of changing the form of money to become digital has been debated over and over again although recently it became much more appealing to the higher ups in the central banks.
Here’s the real question for everybody. What is the relationship between CBDCs and cryptocurrencies? And will the creation of CBDCs help the adoption of cryptocurrencies? Let’s explore that narrative together.
Summary - CBDCs
Central bank digital currencies are similar to stablecoins where the issuers would be the central banks instead of private companies. Imagine a USDC or TUSD mechanism but the issuers are central banks. This would get a huge amount of trust by the public because they know central banks represent the governments themselves (unlike private companies where sometimes you have doubts about them).
However, in recent development, CBDCs have evolved a little bit. Unlike stablecoins that we all know, some central banks (such as Chinese central bank) decided to remove the underlying paper money behind their CBDC plan. So, you can imagine a stablecoin but without proof that they actually have real fiat currencies backing the stablecoin. It’s only a number recorded on the blockchain and that’s it.
The CBDCs themselves have invited controversies due to this mechanism. Many anti-CBDC analysts believe that digital fiat currencies would be abused by those in power to track the citizens. They also think it’s idiocracy to just “trust” the central bank without any underlying asset behind the CBDCs.
Despite the fact that it invites controversies but the plan to create CBDCs is still moving forward. The EU, China, and other countries get more and more interested with this idea after the COVID-19 pandemic. They believe the current pandemic would allow them to use something digital to replace the inefficiency of paper money.
How CBDCs Can Actually Help Crypto
While many crypto believers do not really support the idea of CBDCs (because they only represent the value of fiat) , indirectly CBDCs can actually help crypto. This is very possible because the underlying technology behind CBDCs would be the blockchain itself. Yes, CBDCs would use semi-private or private blockchain technology and would force the citizens to start adopting its technology.
Just like how Android default apps would allow Android users to get familiar with the Google Play Store, you can say the same thing with how CBDCs would introduce the users to the blockchain space and they would eventually be exposed to Bitcoin and the likes (PS: if you are still new to Bitcoin, you might want to check out this link).
While many central banks always repeat the same narrative “blockchain, not bitcoin” over and over again, the truth is that the blockchain space reminds me of the internet of the old days. When you are exposed to the “intranet”, you would want to explore what’s the bigger world (internet) out there.
This analogy is quite similar to how CBDCs can help crypto. Majority of users don’t know how to use the blockchain. That said, if they are used to CBDCs and how to utilize the blockchain to see their transactions etc., the adoption for public cryptocurrencies would be significantly easier for them.
Of course it’s never easy to predict what would happen in the world where CBDCs become the norm. Nevertheless, it’s better to always assume or hope for the best. In our crypto space today, many casuals don’t even know how to use a blockchain wallet - they only know how to convert their fiat to crypto and just leave the money there in the crypto exchange account (note: you can learn more about blockchain wallet from this article).
In the world where CBDCs have become the norm, people would be forced to understand the basics of blockchain technology - and in my humble opinion, it should help crypto adoption. After all, stablecoins issued by central banks would be more trustable than stablecoins issued by private companies.