Will Central Bank Digital Currencies (CBDCs) Compete With Bitcoin?
Not a day goes by that we don’t see a news article about another country making its own CBDC. First, it was China, then Russia, followed by Australia and Jamaica. In fact, we suspect that, at some point, every country will have a CBDC.
But will CBDCs compete with Bitcoin? In our opinion, not a chance, but keep reading to learn more about these two types of cryptocurrencies.
What Are CBDCs?
A CBDC is a digital form of currency issued by a central bank. CBDC stands for “central bank digital currency.” While these tokens are often compared with cryptocurrency, it is important to know they are stablecoins and are not investment-grade, as their value is tied to a national currency. They are also centralized, with the issuing government having full control over the CBDC.
In short, CBDCs are a digital form of fiat money created using blockchain technology.
What is Bitcoin?
Bitcoin is a digital cryptocurrency, and though we know many reading this already know what Bitcoin is, we feel an in-depth definition is important to compare these two cryptocurrencies fully. Bitcoin is a decentralized, borderless currency, meaning anyone can use Bitcoin to send to any other person on earth (as long as they have a wallet address). No one person or entity owns Bitcoin, and its value is tied to the laws of supply and demand.
Bitcoin has risen to prominence in recent years because it has proved to be a good investment. While it is still volatile, it has been on an overall upward trajectory since its inception in 2009.
Can CBDCs Compete with Bitcoin?
In our opinion, there will never be a competition between CBDCs and Bitcoin. Namely, because CDBCs can’t possibly compete with the borderless nature of Bitcoin, no matter how good a CBDC may be. Even if the US makes a CBDC (remember the US Dollar is used by many countries which aren’t the US), individuals would still need to convert if they wanted to use it in a country like Mexico, France, or Germany.
CBDCs, though they are often more convenient than fiat currency, still suffer the same pitfalls—they’re centralized, require conversion, and don’t allow freedom. These were the things Bitcoin was built to solve, so we doubt CBDCs will ever compete with cryptocurrencies like Bitcoin.
Not only that, but Bitcoin has taken the world by storm because it has done what fiat failed to do—unite individuals of all races and ethnicities. No CBDC will ever be able to do that because of politics and international tensions.
Are CBDCs Good?
Just because CBDCs can’t compete with Bitcoin, doesn’t make them bad. But we don’t think they are amazing either.
On the one hand, the world is becoming increasingly digital, and we believe CBDCs are simply the next step for fiat money, one that the COVID-19 pandemic helped to spur on as businesses everywhere moved away from accepting cash. CBDCs will offer individuals convenience, especially if a country mandates that a CBDC must be accepted everywhere in that country.
Unfortunately, this convenience comes at a huge cost: your privacy. While fiat money can be annoying to deal with at time, it does make it difficult for the government to track your spending. If you switch to a CBDC, the government can watch every purchase you make, from a pack of gum to a car. While that may not bother some people, know that if you ever find yourself on the wrong side of the law, you could find all your accounts locked, meaning you can’t spend anything and will be forced to turn yourself in. And before you say you would never break the law, remember laws can change on a whim. It could be illegal to be a member of a certain community tomorrow, and you could find yourself wanted.
Not only that, but we worry about inflation when it comes to CBDCs. While inflation is always a worry with fiat, at least with paper dollars, it does take some time for the country to print said money (though this process has become increasingly digital over the years as well). If a country only uses CBDCs, then it will just be typing numbers on a screen.
We know that CBDCs are a coming reality, and there is only so much we can do to fight them. We hope that by educating others, we can at least slow the process and keep you informed of your rights.
How to Protect Your Financial Future
Unfortunately, we are becoming increasingly pessimistic about the future of all governments, and thus our only recommendation to protect your financial future is to diversify. If you can, put some of your money into cryptocurrency, either Bitcoin or Ethereum, and just keep in fiat what you need to live your daily life.
Of course, Bitcoin and Ethereum aren’t guaranteed either, which is why we recommend buying some physical assets—mostly gold or silver, which you can store and trade in when needed. While many turn to real estate, which is an option as well, know that a massive currency devaluation, or you landing on the wrong side of the law, will make this asset difficult to cash in on, which is why we recommend something anonymous, like gold.
We don’t mean to sound like doomsday preppers, but we’ve seen the world spiraling in the last few years, especially when it comes to privacy. It is almost impossible to stay off the grid these days, and a CBDC will only speed up the slide into a society where the government knows all, sees all, and controls all.
Overall, though CBDCs are definitely in the future of every nation, they will never truly compete with Bitcoin. We recommend voting against CBDCs whenever possible and continuing to use cash as long as it remains an option. And, if the time comes where cash isn’t an option, consider using the last of what you have on hand to buy gold or silver—something tangible you can sell in an emergency.
