Cryptocurrency is gaining momentum. Mostly with private investors and financial institutions. But is is gradually getting more serious as some countries are already pushing their own central bank digital currency (CBDC). What is CBDC and is it actually a cryptocurrency? Let’s find it out.
Haters gonna hate, but digital assets right now have more prospects than ever.
Despite last summer’s crypto mining ban in China, Western countries finally started taking crypto seriously.
Even the financially conservative US government is talking about creating their CBDC.
State-issued digital money are discussed and developed worldwide in the last years. And in particular, China succeeded in CBDC more than others.
Recently Ukraine revealed plans for their digital money.
At the same time there is a lot of confusion about what central bank digital currency actually is, should we treat it as cryptocurrency and should we be afraid that CBDC is destined to become an ultimate surveillance tool for governments all over the world.
Cryptocurrency vs CBDC – what’s the difference?
Basically, cryptocurrency is any type of digital or virtual currency that uses encryption to safeguard transactions.
But there is a catch.
Cryptocurrencies don’t have a central issuing or regulating authority, depending instead on a decentralized system to log transactions and produce new units. It might be a Proof-of-Work consensus mechanism with miners validating operation over the network. Or a Proof-of-Stake model which relies on users who stake their crypto. But anyways cryptocurrency is decentralized. And as such is independent from any authorities except for the society of the users who run it.
On the other hand, CBDC is a digital form of central bank money that is widely used by the public. They are based on a country’s fiat currency’s value. So basically central bank digital currency is just a different form of fiat money.
Whilst cryptocurrencies are symbols of personal and financial freedom, CDBC is actually changing nothing for the users of fiat money. Except for the fact they use the same money in a purely digital form.
CBDC assets will be issued and stored using a centralized method.
You don’t get to remain anonymous while dealing with CBDC. All your transactions are monitored just like everything you do with your usual credit card.
You already know that when you buy something with your credit card, it is recorded and stored somewhere in the datacenters of your bank. So wouldn’t want to pay for something illegal with that card, right?
Same story with CBDC. Nothing similar to crypto here, except for the fact that there is no cash in usage.
Sceptics often say that central bank digital currency is some kind of hoax on a state level.
Most people will think CBDC is something like crypto, while it will be a sophisticated surveillance tool.
Crypto in Ukraine
To show how it works let’s start with Ukraine.
A few days ago KUNA crypto exchange founder and head of Ukraine’s Blockchain Association Michael Chobanian talked to Bloomberg about the country’s crypto future.
Chobanian runs the “virtual government crypto fund” of Ukraine as the country started taking donations in digital assets for the Army.
“I knew there would be a time in the future when crypto would play a vital role. I never imagined it would be because of the war, that was definitely not my plan,” Chobanian said.
According to him, Ukraine is number one in the world by personal usage of crypto. He also pointed that big companies in the crypto space had offices in Kyiv before the war.
Now Chobanian describes himself as “a crypto banker for the government,” and defines his role as “to supply my people with all the necessities that they require and make sure that we can pay as fast as possible.”
Cash, U.S. dollars, in Ukraine are pretty much useless, he says. No one wants them. Prior to that, dollars were the main payment method for the OTC market. Now considering that you can’t really move cash outside of the country and you cannot store it securely, no one really wants it.
Earlier there were a lot of crypto skeptics in the government, banks, and the military, Chobanian concludes. But now the country saves lives every single minute with crypto.
What is with Ukrainian central bank digital currency?
That much interest in crypto surely leads Ukraine to launch its own governmental digital currency.
Stellar CEO Denelle Dixon says right now Ukraine is developing its CBDC despite the ongoing Russian invasion.
Stellar now is working with the Ukrainian government on its CBDC. And the company sees delays in the project, saying that the precise Ukrainian CBDC launch date is still unknown.
Reportedly, the digital currency management system Bitt and Ukrainian bank Tascombank should be utilizing Stellar to pilot a digital version of the Ukrainian national currency – hryvnia (UAH).
Ukrainian president Volodymyr Zelensky previously announced that he want to “move to a cashless society” over the course of this year.
Ukrainian CBDC project can also support the hryvnia as the country already faced a huge impact on the economy because of full-scale devastations and business canceling.
What about the rest of the world?
According to Atlantic Council data, there are 87 countries currently exploring CBDC. These countries represent over 90 percent of global GDP.
To date, only 9 countries launched their own CBDC. Predominantly these are 7 countries in the Eastern Caribbean, The Bahamas, and Nigeria.
The latter has achieved impressive success in terms of CBCD development. The Nigerian central bank digital currency is called eNaira. And as much as 500 million eNaira has been minted already. Currently, only the bank account holders can access the eNaira.
The next phase of the CBDC rollout in Nigeria will include the unbanked using national identity number, which has reached 60 million signups by the end of 2021.
There is also more than 15 pilot project of CBDC in countries like China, Saudi Arabia, South Korea, Thailand, UAE, Sweeden, Singapore, Malaysia, Hong Kong, South Africa, Russia, and others.
Former Bank of Japan executive Hiromi Yamaoka hints that sanctions against Russia can inspire more countries like China to look at CBDC as a tool to counter the dollar’s dominance in the global financial system.
Should you care about central bank digital currency?
Well, that depends.
First of all, your country might not be in the list of the countries actively developing CBDC. In such case you have nothing to worry about at all.
But even if you are lucky to be a citizen of a country that is going to develop CBDC, it doesn’t automatically mean you are in trouble.
You still consider the US or UK to be outposts of the world democracy despite the fact that any American or British bank is actually recording all your transactions. When CBDC finally appears, nothing will change. You will still be using fiat money – even in the purely digital form – knowing you are being watched.
So to be absolutely free you still need to use crypto as much as possible, right?
CBDC – whether it is a tool for surveillance or not – has nothing to do with your private financial life.
Let me put this straight. Using crypto is inevitable in case your care about your privacy. Central bank digital currency changes nothing in this regard.
Sources: Bitcoinist, Crypto Briefing, Reuters, Atlantic Council
