Despite the media conflating the two, Central Bank Digital Currencies (CBDCs) are not cryptocurrencies. They may share some superficial similarities, but CBDCs are not just a cryptocurrency or altcoin created by a central bank. It is important to remember that a central bank operates in the interest of its owners, usually a government, like the Bank of England is owned by the UK government; or a group of banks, like the Federal Reserve is in the United States.
The lure of CBDCs is the ease with which they may be used. There will probably be an app (for those with smart phones) or a chipped card (for those without a smartphone). A purchase would be made in the same way is is done today with any of the quick-pay apps (PayPay, Venmo, etc) or credit/debit cards and the amount debited from your account. So there will not be a learning curve for using CBDCs.
Those touting CBDCs claim that intermediary costs will be removed from transactions, resulting in lower prices (or higher profits). Those costs are the ones currently in place for the credit card processors and the banks involved (the purchaser's and the vendor's), as well as any float (interest) if the amount is delayed in being credited to the vendor. The purchase price is simultaneously debited from the buyer's CBDC account and credited to the vendor's account.
At this level, everything looks just like a crypto transaction. But beneath the surface, the transaction is not at all like a crypto transaction. First, the transaction is not added to a blockchain. CBDCs do not need a blockchain. A blockchain is an immutable, decentralized ledger. A central bank has no need for decentralization nor immutability. Neither China's nor Nigeria's CBDCs (two CBDCs that are being used) use a blockchain. Second, there is no Proof of Work (PoW) nor Proof of Stake (PoS) nor any other decentralized mechanism for adding the transaction to central bank's ledger. The central bank just does the debit and credit of accounts, just as banks do today.
While details of future CBDCs are unknown, it is not hard to speculate on what else is going on behind the scenes. First, there will probably be no limit to the amount of CBDCs that can be issued, unlike most cryptocurrencies that have a hard limit on the total amount that can be created. Why should a central bank limit itself? Right now, no central bank has a limit on how much currency it can create (in the United States, do not confuse the debt ceiling of the US Government with the balance sheet of the Federal Reserve, they are not the same).
Second, security will be ever evolving for a CBDC. Think of how many times bank accounts and centralized crypto exchanges have been hacked. There will be one big, tempting central ledger, where a hacker could drain accounts, increase accounts, even delete accounts. This is not possible with the blockchain technology behind cryptocurrencies.
Third, privacy will be gone. Where cryptocurrency offers some privacy, CBDCs will probably offer none. There will be reassurances that nobody can see the transactions, but the "nobody" will be anybody not in the central bank or the government. In the United States, citizens are reassured that their tax returns are private, but there have been several cases where tax returns have been disclosed to the press. The transactions in the CBDC ledger will be visible to anyone working with the ledger. After all, someone has to audit, update, and/or search the ledger in response to queries and updates.
Fourth, immutability and irreversibility will be gone. A transaction on the blockchain is forever and cannot be changed. A transaction on the CBDC's ledger can be changed, just like a bank's ledger can be changed today. Of course, the CBDC's software will prevent most changes, but it is not hard to think of an instance where a central bank wants to make a change. An example would be to seize assets of an enemy of the central bank's government.
Central Bank Digital Currencies will be coming soon. There is a lot of upside and not a lot of downside for a central bank to issue a digital currency. That means there is not a lot of upside and a lot of downside to those who use (or are forced to use) a CBDC.
Do your own research (DYOR) and see what is planned for your country.
