The Difference between Cryptocurrencies and a Central Bank-backed Currency (CBDC)
Analysts are convinced that El Salvador's decision to adopt Bitcoin, a cryptocurrency, will make other countries, especially in South America, follow suit.
Could there be another route? Will central banks and politicians allow their power to fizzle out?
Time will tell.
To counter this wave, most central banks are beginning to digitize their currencies.
And this brings us to the Central Bank-Backed currency (CBDC).
Let not the mouthy name trick you; a CBDC is nothing more than digitized money.
It is legal tender without a fixed supply. So every other time a bank adjusts policy, it means more CBDCs will be printed.
What's more, a CBDC may or may not ride on a blockchain—public or private.
At best, given how sensitive money matters are, a central bank may decide to print CBDCs from a permissioned network.
Since it is legal tender, CBDCs will be in the hands of the central bank, and no taxes apply—as you would expect.
Meanwhile, cryptocurrencies ordinarily would have a fixed supply, operate from a public ledger, be community-owned, and considered a commodity—or banned in some instances—read China.
As a commodity, capital tax gains apply, translating to more expenses when spending as a medium of value.
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