Recently, the central bank's digital currency (CBDC) and crypto currency have been among the topics frequently discussed , in line with the rapid pace of the global financial system.
The central bank is racing to produce digital currency as recently The Bahamas has officially succeeded in launching the world's first central bank digital assets. Not forgetting the progress of China which will launch the digital yuan soon.
Some may be confused about the difference between CBDC and cryptocurrency. It looks similar especially in digital nature, but in fact it is not.
What is the difference?
Centralized vs Decentralized (Centralized vs. Not Centralized)
Be aware that cryptocurrencies like Bitcoin have a centralized system, while central bank digital currencies rely on a centralized system.
This means that unlike cryptocurrencies, the CBDC will involve a lot of central bank intervention which is unlikely to cause other issues to be ignored. Just like the COVID-19 issue which led to an increase in their debt and failed to address inflation completely.
Privacy and autonomy
Cryptocurrencies in peer-to-peer settings allow users to decide how much information they should share. The CBDC, on the other hand, demands automatic data sharing with tax authorities or agencies for every transaction made.
Indirectly without the protection of CBDC consumer information, they are at risk of being exposed to criminal activity.
Security
Undoubtedly, the crypto industry has blockchain and exchange security vulnerabilities, involving problems with personal protection and wallet identification data after reuse. There is a 51% probability of attack across the blockchain and more.
The CBDC is also vulnerable to security vulnerabilities, which have the potential to face cyber attacks from foreign countries, much like the weaknesses of a country's government administration in dealing with such crimes.
Basically, these two digital assets are still 'budding' in the global financial system. It is appropriate to give this industry the opportunity to become more robust and sustainable for future use.
