Although in their infancy, 134 countries are now exploring central bank digital currencies (CBDCs). That’s 46 more countries than this time last year.

Like it or not, Central Bank Digital Currencies (CBDCs) are on track to dominate. Their rise won’t just shake up traditional money—it could reshape the future for cryptocurrencies like Bitcoin and Ethereum, too.

But what exactly are CBDCs, and how much should crypto investors care?

What are CBDCs in Simple Terms?

CBDCs are the next stage of fiat evolution. Issued by central banks, they function as digital counterparts to traditional currencies like the euro and dollar.

Benefits of CBDCs:

• No service or exchange fees, unlike with BTC and ETH.
• More convenient than holding physical cash, cards, or coins.
• Faster payments than traditional credit cards or cash transactions.
• Government-backed, unlike Bitcoin or Ethereum.
• Easier storage for governments.

Are CBDCs Superior to Bitcoin and Other Decentralized Coins?

The key difference lies in control. Cryptocurrencies like Bitcoin and Ethereum emphasize decentralization, stripping away the power of any single entity. CBDCs, on the other hand, have centralized control.

CBDCs can:

• Freeze accounts if individuals protest or dissent.
• Impose purchase limits based on various criteria.
• Enforce expiration dates on funds, pushing consumers to spend as the government dictates.
• Track every transaction, thus eroding privacy.

Global CBDC Initiative

The push for CBDCs is widespread. A recent Bank for International Settlements report indicated that approximately 94% of central banks are investigating the launch of such digital currencies. China is testing its Digital Yuan, while nations like India, Turkey, and Russia are also advancing rapidly in this space.

As the U.S. considers introducing a digital currency, Jerome Powell has noted, “You wouldn’t need stablecoins; you wouldn’t need cryptocurrencies if you had a digital U.S. currency.” Although discussions around a digital dollar are ongoing, development remains at an early stage.

Will decentralized cryptocurrencies endure amidst the rise of CBDCs? Only time will tell.