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What is CBDC? Differences between Crypto and CBDC

The proliferation of virtual currencies has coincided with the growth of cashless transactions. Whether they like it or not, the global central banks have to adopt CBDC (digital currency) initiatives.
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7 min read
Published Mar 20 2021
Updated 4 days ago
what is cbdc

What is CBDC?

A CBDC (Central Bank Digital Currency) is a digital form of fiat money that is linked to the national currency of the country or the area issued it. The central banks are in charge of issuing them, and they have complete control and regulation over these cryptocurrencies.

For many nations, integrating a CBDC into the financial system and monetary policy is still in its infancy; nonetheless, it might be more frequently used eventually.

Since a CBDC would be a Federal Reserve obligation rather than a commercial bank's, it would be distinct from other digital currencies currently used by the general public.

what is cbdc

Types of CBDCs

CBDCs come in two varieties: wholesale and retail. How each user access and use their currency varies:

CBDC wholesale

The primary users of wholesale CBDCs are financial institutions. They resemble having reserves in a central bank in that regard. By adopting blockchain technology, banks and other financial institutions might use a central bank's CBDC to move money and settle transactions more quickly, easily, and automatically. International trade may become more dependable and switchable.

Then, central banks can control lending and set interest rates through monetary policy instruments like reserve requirements or interest on reserve balances.

CBDC Retail

Retail CBDCs are digital currencies that the government supports and utilized by consumers and companies. With private and public keys, you can access them. While this kind of CBDC would boost local payment efficiency, it might also benefit international payments.

Using an anonymous transaction execution technique eliminates intermediary risk—the possibility that private digital currency issuers may go out of business and lose their clients' assets.

CBDC’s features

CBDCs are still in their very early stages; thus, it's unclear what features they will have, assuming they are ever implemented.

A CBDC is frequently like a cross between Bitcoin and money that the government issues. The resulting CBDC creature combines the best qualities of each, and its specific features may include:

Distributed Ledger Technology (DLT)

CBDCs are digital, but they use a separate set of technologies. They typically offer to redesign money from the ground up, including distributed ledger technology (DLT) inspired by Bitcoin's underlying technology.

Banks must maintain financial records in a ledger, such as a person's balance and a record of their transactions, to keep track of money.

DLT consists of several copies of this transaction history, each stored and managed by a different financial firm, and is often run by the key personnel of the nation's central bank. This is different from a single database that houses all of a person's financial records. Together, these financial institutions disseminate their DLT.

Because only a small number of predetermined entities have access to and control over the blockchain, it is known as a permissioned blockchain. Central organizations also regulate who has access to the blockchain and what they can do with it. This contrasts with a permissionless blockchain, like Bitcoin, which enables anybody to execute the program and take part in transferring transactions over the network.


No single entity or set of entities (as with DLT) is in charge of Bitcoin and other public blockchains like Ethereum, making them unique. Typically, governments don't like having properties like that.

Governments favor distributed ledger technology (DLT) because it allows them to control several variables, including the distributed ledger's manager and the supply of Bitcoins, which has remained constant.

Lower costs and higher efficiency

CBDCs could result in cheaper costs for money transfers because of the structure they have built up. The theory behind a CBDC is that it will make it easier to move money around than the current, fragmented financial system since it will connect financial firms more closely.

Payments Privacy 

DLTs provide a thorough record of all transactions. Some regimes, like China, which is renowned for its massive surveillance system, may seek to exploit this financial data to keep a closer eye on their population.

In this regard, various governments are inclined to pursue multiple policies. For instance, if it adopts a CBDC, the U.S. Federal Reserve appears more inclined to protect the privacy of American residents.

The first CBDC blockchain in the world

Apollo Fintech, a business specializing in offering government solutions for CBDC, has introduced a National Payments Platform (NPP) to expand the use cases of CBDC on a global scale. The system allows the government to keep track of financial transactions and record them in a single ledger.

Banks will be rewarded for allowing customers to conduct transactions on the CBDC platform to popularize and launch CBDC. The system will also roll out practical and user-friendly applications, including issuing ATM cards, mobile apps, NFC cards, QR codes, and many other goods.

Vietnam won't be left out of the digital currency game because this represents a significant step toward economic integration and improving the national financial system through technology.

CBDC’s advantages

A CBDC could potentially offer a range of benefits.

Promote production and circulation of goods

Producing goods to sell them and make money, or creating a surplus for the economy, is the goal. Payment processing will be quicker and more transparent with CBDC. This encourages companies to produce more items, distribute them more widely, and accumulate fewer bad debts.

Increase circulation stability and cut social costs

Money will circulate more easily once CBDC is widely used. It also lowers the social costs associated with cash, such as producing money, counting coins, transporting it, and keeping it.

Increase market capitalization

CBDC is not now in demand, so there isn't enough money in circulation to cause a surplus or, worse, depreciate. Banks can use deposit assets as loan capital for both consumption and production when CBDC is widely employed.

Increase monetary policy's effectiveness

Each nation has its own set of rules that it uses to control the state of its economy by actions like raising or lowering interest rates and producing or collecting money. Since the amount of money is more strictly managed with CBDC, policies will be improved.

CBDCs vs. Cryptocurrencies

The ecosystems that sustain cryptocurrencies provide a glimpse of an alternative monetary system where transactions are not constrained by onerous rules that predetermine the conditions. They feature consensus mechanisms that prevent tampering and are challenging to duplicate or counterfeit.

Despite sharing a concept with cryptocurrencies, central bank digital currencies are fundamentally different from them in several crucial aspects, including:


One of the most glaring differences between CBDCs and cryptocurrencies is that cryptocurrencies tend to be decentralized, with no central managing or directing authority.

CBDCs, on the other hand, are centralized, with the issuing government maintaining the power to administer and control the digital currency, as well as to track the flow of funds and even forbid certain people from dealing in that digital currency.


Central banks can maintain taxation while concentrating on planning and decision-making by deploying CBDCs. These central banks control foreign exchange and the money supply, a key monetary policy lever because they can create and retire money digitally.

For cryptocurrencies, the decision-making process is decentralized. For instance, Bitcoin can be used to carry out anonymous transactions in peer-to-peer markets.

Underlying value

When comparing the value of CBDCs to cryptocurrencies, CBDCs may offer greater security due to the backing of the government that issued them. They are speculative-oriented assets more prone to volatility, making them improbable choices for a financial system that demands stability.

In a context with stable political systems and low inflation, CBDCs may be counted on their ability to keep their value over time or, at the very least, to follow the pegged physical currency.

FAQs aboy CBDC

Is CBDC a cryptocurrency?

CBDCs are not cryptocurrencies, although cryptocurrencies and blockchain technology inspired the central bank digital currency concept. While cryptocurrencies are virtually usually decentralized, meaning a single authority cannot govern them, CBDCs are managed by a central bank.

Is CBDC based on Blockchain?

Blockchain isn't a need for CBDCs; it's merely an option.

A CBDC's efficiency and scalability may be hampered by distributed ledgers, according to research from the Federal Reserve Bank of Boston and Michigan Institute of Technology's Digital Currency Initiative.

Will a U.S. CBDC replace cash or paper currency?

The Federal Reserve is contemplating a CBDC to increase safe payment options, not to decrease or replace them because it is dedicated to maintaining the safety and accessibility of cash.

Most nations view a CBDC as an additional form of money rather than one that will replace the current financial system.

Why have so many countries been exploring CBDCs recently?

Since its 2009 introduction, Bitcoin has experienced remarkable growth, giving rise to several financial products and child currencies that share the same core technology. However, it wasn't until the launch of Libra, a blockchain-based digital currency initiative supported by Facebook, in 2019 that governments worldwide started to consider if they should implement similar technology more seriously.

They started to question whether the dominance of the government over money might be challenged by a currency developed by a firm as large and influential as Facebook. In response, countries quickly examined the possibility of integrating such technologies into their domestic payment systems.


CBDCs are still in their infancy, but it's evident that the concept is gaining traction. More than 90% of the global gross domestic product (GDP) is concentrated in the investigating nations. While CBDCs might not completely replace cash, most countries will probably at least use their digital currencies in some capacity.