Digital Currencies And CBDCs

CBDC refers to digital currencies developed by central banks around the world that represent the legal currency of the country where they are developed. These currencies are generally based on tokens, which are also known as distributed ledger technology (DLT). CBDC is the basic term used to describe digital currencies printed by countries to represent their own currencies. While many CBDCs share common technology with cryptocurrencies, these two assets are different in many ways.

As cryptocurrencies have gained significant popularity worldwide, it is essential for central banks to develop digital currencies. CBDCs can help prevent many problems associated with cryptocurrencies, such as leading people to financial losses or the wrong investment instruments.

What is a digital currency?

CBDC is a prime example of a country utilizing digital technology on its currency. The development of these digital currencies by countries indicates that many changes will happen in the future. I believe that many future trades and services will be carried out using these digital assets. Especially with the recent significant developments in cryptocurrencies, I also believe that this progress will continue, maybe in a slightly different form.

I believe that digital currencies will become the norm and be officially recognized worldwide in the near future. Furthermore, I believe that this change will be suitable for today’s technology and structure. In a world where globalization is increasing every day, it is impossible not to develop digital currencies. With this perspective, I also think that many investors should have a positive outlook on digital currencies and invest in this area. I would also like to emphasize that digital currencies will be one of the most important tools for future investments.

Are Cryptocurrencies And CBDC The Same?

Cryptocurrencies and CBDCs

As we entered the year 2010, many cryptocurrencies, such as Bitcoin, entered our lives. The experience of this cryptocurrency has led to a significant and revolutionary change in the financial industry. Many cryptocurrencies, like Bitcoin, have been used in various fields in the digital world. Especially due to the perception of cryptocurrencies as an investment instrument and their continuous development, their value has consistently increased. First of all, it should be noted that cryptocurrencies like Bitcoin and Ethereum have a network that can be accessed by different participants. This network is referred to as the blockchain. All users can access and perform various transactions through this network. Additionally, there is no need for permission to conduct transactions on these networks. In this sense, we can say that cryptocurrencies are completely decentralized. Cryptocurrencies are not under the control or supervision of any individual. With this feature, cryptocurrencies do not need regulation and are also resistant to censorship. On the other hand, CBDC does not have these features related to cryptocurrencies.

Digital currencies, known as CBDC, are created under the control of a country and are supervised by the central bank. Many CBD products use blockchain technology, like cryptocurrencies. However, the blockchain networks used in these digital currencies have a permission-based feature where access can be granted. The central bank has access to and control over these networks. We can say that authorities such as blocking transactions, freezing accounts, or blocking addresses can be used on these networks. Also, there is uncertainty regarding the classification of cryptocurrencies around the world. Cryptocurrencies are classified as commodities, currencies, or securities. There is no clarity on which institutions will oversee cryptocurrencies, so this uncertainty seems to continue. However, there is no such difficulty with CBDCs. Because these currencies, developed by the central bank, have a legal status, the regulatory authority is fixed.

CBDC And Lts Applications

What are the standout features of CBDCs?

When we look at today’s financial system, we see a structure that is becoming increasingly global and digitized. Therefore, there is a need for new formations as well as adapting to the different needs of the digital world. Especially due to the structure created by cryptocurrencies, CBDC can provide great benefits. The opportunities such as digitalization and instant living in today’s world must also be reflected in the financial field. Everyone can see that this change is inevitable. Money transfers and other services, in particular, should be completed in a timely manner all over the world. Different digital currencies will be useful to achieve this. Thanks to these currencies, it becomes quite easy to send money to a different region of the world or to make a different financial transaction in a very short time.

CBDC will increase both the trust in and prevalence of digital currencies. One of the most important contributions of these currencies is that dependency on intermediaries has been prevented. This way, it is possible to send money in a very convenient way instead of using the money transfer systems we use today. In addition, there is no illegal use of these currencies. The illegal purposes and insecurity seen in cryptocurrencies, in particular, will not be seen in these currencies. It will be in a position that can be easily used by people because it is controlled by a central institution. In addition, since it is under the control of central banks, there are different bans and penalties against illegal use. Therefore, it is a feature that can be easily and safely used by all individuals. I think these currencies should be supported, especially by investors. Because for an investor, allocating and transferring resources can become a very painful process. Thanks to these digital currencies, investors’ troubles will also come to an end.

Different Designs Of Digital Currencies

CBDCs and their various designs

Digital currencies designed by central banks can have two different designs: account-based or token-based. However, when designing digital currencies, no compromise should be made on issues such as accessibility and privacy. Digital currencies designed by central banks must be governed by the rules of traditional currencies. All users should have easy access to these currencies, and the distribution method should comply with central bank rules. Additionally, these currencies should not make transactions difficult.

Token-based digital currencies provide global access to all users. We can say that distributed ledger technology is used in token-based units. Account-based CBDC, on the other hand, is a feature based on the user’s identity. To access these accounts, one must have a digital identity. Account-based designs are not preferred because they require constant interaction with intermediary institutions such as banks. Token-based CBDC, on the other hand, is more user-friendly and reliable with its blockchain structure.

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