The global financial landscape is rapidly changing because both CBDC and cryptos are becoming increasingly more acceptable. Central Bank Digital Currency (CBDC) is issued and regulated by a country’s central bank and utilizes blockchain technology to accelerate and increase the safety and security of digital transactions. Cryptocurrencies also use blockchain technology, but unlike CBDC does not have any centralized authority. Around 130 countries represent nearly 98% of the global economy and are exploring the digital versions of their currency.
Reasons Why CBDC and Cryptos Hold The Future
CBDC and cryptos have several commonalities and differences and this is why both are becoming widely acceptable. Therefore, it is important to know the features that are compelling people and institutions alike to adopt, modify, and expand the two currencies.
International Approval
The international approval of CBDC and cryptos is not happening at the same pace. This is because CBDC is highly centralized and enjoys the trust and credibility of the nation’s government. Cryptocurrencies are also gradually becoming more acceptable because Argentina, El Salvador, and the Central African Republic have declared Bitcoin as an official currency. In recent times, many countries are contemplating bringing relevant regulations to ease legal complications while dealing with cryptos.
The international approval of both CBDC and cryptos is taking place because of borderless transactions. The two currencies are designed to facilitate transactions transcending international borders and are generally quicker than other forms of currency transactions. In the near future, there is a high possibility that cash may cease to exist. The other possibility is that both CBDC and cryptos may replace cash entirely.
Faster Financial Integration
CBDC and cryptos have different phases of financial integration. Since respective central banks of countries control the CBDC, the financial integration with daily applications will be faster. For instance, through SWIFT, financial integration is faster because of CBDC interoperability. In the context of cryptos, the attitude of the government matters. If the attitude is not restrictive, then cryptos integrate faster.
Privacy and Security
The common reason behind the growing popularity of both CBDC and cryptos is their high level of security and privacy. CBDC is inarguably more secure than cash and checks because most banks and financial institutions can deal with ordinary security threats. Cryptos though not linked with major banks and financial institutions are also secure because of the inbuilt security features of blockchain technology.
In the context of individual privacy, both guarantee it. However, cryptos are more private because individuals and entities can hide their identities while dealing with transactions. CBDCs because of their linkages with banks and financial institutions also do not allow unauthorized access to identity and protect privacy to some extent.
Growth of Cryptos in the Future
Blockchain technology is prone to many innovations and it affects the credibility of cryptos. This is the reason cryptos like Bitcoin make payments and other financial services that are faster and cheaper. The global cryptocurrency market size is expected to grow at a compound annual growth rate of 12.5%. The increasing usage of cryptos for international remittances will fuel market expansion.
Growth of CBDC in the Future
According to the Atlantic Council, 130 countries are exploring CBDC and this may affect 98% of the global GDP. Furthermore, around 64 countries are now exploring the pros and cons of CBDC and some are already at the stage of launching. The growing popularity of the Unified Payments Interface (UPI) is another positive factor largely responsible for the further expansion of CBDCs.
Also Read- Why NFT Marketplace is the Next Best Crypto Business Idea 2024
In Conclusion
CBDC and cryptos indeed hold the key to the future of global finance. This is because CBDC is an important tool in the monetary policy of the central bank. It may help boost public trust in centralized financial institutions and the government. Contrarily, cryptocurrencies offer benefits like privacy and decentralization. The internet is partially responsible for the rise of CBDC and cryptos alike because the reach, speeds, and usage have increased considerably.
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