Both Bitcoin and CBDCs have captured the attention of mainstream audiences as the cryptocurrency industry evolves. However, despite their similar status as ‘digital assets’, there are some stark differences in the way they’re issued and controlled.
Coin Rivet will explain what a CBDC is and what Bitcoin is before delving deeper into the main differences between the two assets.
What is a CBDC?
A Central Bank Digital Currency (CBDC) refers to the virtual or digital asset form of a fiat currency such as USD, EUR or GBP.
They are issued and regulated by a nation’s monetary authority or central bank and are currently being explored by a number of countries worldwide in a bid to ‘digitalise’ the current monetary ecosystem.
What is Bitcoin?
Bitcoin is a decentralised digital asset that can be transferred and sent worldwide on a peer-to-peer basis without the need for an intermediary or central authority.
The asset is distributed, traded and stored using a decentralised ledger system known as a blockchain.
Launched in 2009 by the pseudonymous Satoshi Nakamoto, Bitcoin is the first iteration of a cryptocurrency and remains the largest crypto asset by market capitalisation today.
What is the difference between the two?
The first main difference between the two is that Bitcoin is a cryptocurrency and a CBDC is not.
Cryptocurrencies like Bitcoin are stored on a decentralised blockchain network whilst a CBDC asset will be issued and stored using a more centralised method.
This means that Bitcoin remains decentralised in nature and cannot be controlled by a single authority. Contrastingly, a CBDC asset can be regulated and controlled by the issuing authority such as a bank or federal reserve.
This raises the issue of anonymity and privacy when using each asset.
When using Bitcoin, you use a wallet address that has no personal information or identifiers attached to it, meaning you can send Bitcoin to others in an anonymous fashion.
CBDCs, however, are expected to be a replacement for cash and centrally distributed, meaning your details will be ‘attached’ to your CBDC asset and be subject to potential oversight and regulation from the issuer.
The value of the assets and the circulating supply are different too.
CBDCs are expected to be ‘pegged’ to the value of the underlying asset, much like stablecoins such as Tether (USDT) and USD Coin (USDC), and have a supply based on demand and use cases for the asset.
In contrast, Bitcoin has a fixed supply of only 21 million, hence why the value of the asset remains much greater than the $1 valuation of a stablecoin.
Conclusion
In the future, it’s expected that CBDCs may utilise blockchain technologies to help distribute and manage their assets.
However, the underlying issues of decentralisation and anonymity attached to the asset will remain, leading many investors to choose a more private, decentralised asset such as Bitcoin as a ‘store of value’.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.