How Would a CBDC Affect Bitcoin and Other Crypto?

Central banks all over the world, including the Federal Reserve in the United States, have been considering the development and circulation of a central bank digital currency (CBDC).

If youre a cryptocurrency fan, you might be concerned about how this would affect the future of these coins. If youre a crypto skeptic, you might be concerned that a centralized digital currency would have even more disadvantages than independent cryptocurrencies. And if youre new to the world of crypto, you might have absolutely no idea whats going on.

Heres what you need to know.

The Premise of a Central Bank Digital Currency

First, lets establish what a CBDC might look like. The Federal Reserve currently has no firm plans to release a CBDC, even as a pilot program. However, it remains open to the possibility. Some central banks in other developed countries are currently running pilot programs of CBDCs of their own.

For the most part, you can think of this as just another blockchain-based digital currency. Except there would be a few major differences. First, a CBDC would be centrally controlled by a central bank, rather than being democratically controlled by users. Second, the introduction of a CBDC would likely be backed by the full power of the federal government. This means it might displace several monetary and financial institutions to which weve become accustomed. For example, to eliminate competition, the government might criminalize other types of crypto or ban cash transactions.