A peep into CBDC.
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Hi friends, welcome back to my blog, I trust you're all doing fine. Yeah! I hope you got value from my last post on Crypto Regulations and it pros and cons. Today I've equally prepared something interesting just as captured above.
I know the above abbreviation, CBDC might look strange to you but do not worry, I would help you understand the concept comprehensively. Without mincing words, let's get into the business of the day
No doubt, cryptocurrency has established a very profound and efficient financial model using the Blockchain technology and this model have proven to be more beneficial than the traditional financial system run and controlled by government.
This fact can not actually be denied and this is the sole reason why the traditional financial system aims to clown this efficient financial model of cryptocurrency but this time they would be the one running the system just exactly the way they have been running the fiat currency.
This clowning is what gave birth to what we call the CBDC which I would be explaining in the next section. Just tag along as I take you on this ride...smiles.
The full meaning of the abbreviated word CBDC is Central Bank Digital Currency. The idea behind CBDC is to leverage on the benefits and efficiency of Blockchain to produce a fiat that would be totally in control of the governments through it central bank.
Let's bear in mind that a Central Bank is the supreme bank of any country and it controls the financial system of that country. in a simple term, CBDC are Blockchain powered version of a country's currency. For example in my country Nigeria, we have the e-naira
The digital version of the naira.
It's important to note that CBDC is totally different from cryptocurrency based on some key features associated with cryptocurrency. One key feature is the decentralized nature of cryptocurrency which makes the system open, permissionless, borderless and censorship-resistant etc. Above all it doesn't allow for a Central control.
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Now this is contrary to the design of CBDC, even though it draws it inspiration from cryptocurrency. There is the Central control by the Central Bank just like the way they control the fiat. In other words, it not a centralized system which therefore mean they could censor one's operation, freeze one's account, blacklist one's wallet address and do all manner of things.
The reason is not far fetched, they are in control and you ain't really anonymous, they know you and can trace your activity from inception to the end.
I know someone is now about to ask... why then do they create the digital version of the fiat...well they ventured into it for the sake of efficiency in the aspect of digital payments.
In this section we will be discussing the type of CBDC we have. Am sure some of you are already surprised we have types... smiles. Well thank God you now know, the knowledge you have now is equipping you already. We have the wholesale CBDC and the Retail CBDC.
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• Wholesale CBDC This is primarily for big financial institutions like the bank. The Central Bank gives such institution the privilege to have an account where this CBDC can be deposited and also used for interbank transfer settlement. The idea here is more like holding a reserve in a Central Bank.
• Retail CBDC
This are used by the general public for their day to day transaction such as payment for goods and services and for business in general. The retail CBDC is also sub divided into two namely the Token based CBDC and the Account based CBDC.
The difference between both is based on on how user gain access and use this digital currency. The Token based retail CBDCs are accessed through the use of public and private key just like in digital wallet making their transaction anonymous while Account based retail CBDCs allows users access via digital identification
CBDC is actually an attempt to replicate the models used by cryptocurrency, digital currency but then, the design is not for the system to be decentralized rather the intention of the government through it agency, then central bank is for it to be centralized. They only want to achieve efficiency in the area of payment and transaction and enjoy some of the Blockchain benefits.
There you go friends.I would love to wrap it up at this juncture. I want to believe you've gotten so much from this piece. As my usual custom is, I would always encourage that you DYOR to be sure of every financial step you would want to take as I won't be liable for any form of loss encountered by you.
Feel free to share with me your thoughts in the comment section. Thanks for your time once again. Gracias!
Disclaimer: This post is made as an education and not investment advice. Digital asset prices are subject to change. All forms of crypto investment have a high risk. I am not a financial advisor, before jumping to any conclusions in this matter please do your own research and consult a financial advisor.
Regards
@lhorgic♥️
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