Bitcoin vs. CBDCs: Which Will Dominate the Digital Currency Landscape? – Digital Transformation News

By Roshan Aslam

The world today, wherever you go, is talking about digital currency, its features, benefits, the different types available for investment for customers, etc. There are many schools of thought that say one type is better than another or one coin will return more fetch than the next. In the midst of all this, the government is trying to come up with regulations to monitor and regulate the exploding investment in mining, trading and transactions using cryptocurrency, while also making people aware of the potential pitfalls of investing in digital currency. In short, there is an abundance of information available to investors that sometimes only tends to confuse the issue even more.

Governments around the world know that there is a struggle when it comes to people turning more to cryptocurrencies instead of the age-old and secure legal tender that countries have used since their founding. However, as the world becomes more technological and digital, digital currencies with their inherent characteristics can no longer be a second choice. As the saying goes, if you can’t beat ’em, join ’em. This is exactly what central banks worldwide have decided to do with the introduction of Central Bank Digital Currencies (CBDC).

In June 2023, India also announced the launch of the pilot of its own CBDC, the ‘Digital Rupee’ joining other nations such as the US, Australia and China. The government has positioned the Digital Rupee as a transformative catalyst that will lead to greater financial inclusion and security for citizens when conducting transactions. Like all cryptocurrencies, CBDCs are founded and operate on the foundation of blockchain technology and use decentralized and encrypted checks and balances to record transactions and protect investors from fraud and cyber theft. The Government of India is positioning CBDCs as a way to promote financial inclusion by bringing more people into the new-age digital economy. This leaves investors in a conundrum whether they should invest in cryptocurrencies that offer significantly higher returns, albeit fraught with such high risk, or should they take the safe route and invest in CBDCs?

On the face of it, investing in CBDCs seems like the logical and safer option, but it may not be the best option. Let’s look a little deeper at some key differences and the answer will become clearer. Cryptocurrencies of any kind, especially Bitcoin, are decentralized in nature and lack the censorship that comes with government-controlled CBDCs. The value of a Bitcoin is determined by market trends and basic economic principles of demand and limited supply of only 21 million coins worldwide. CBDCs on the other hand depend on the policies of the central monetary authorities of countries which results in them being controlled by a single entity. This also makes CBDCs vulnerable to inflationary conditions as the supply is not fixed and can be increased at the discretion of the Central Bank.

However, a major point of discussion revolves around safety and security during transactions with Bitcoin or CBDCs. While transacting in Bitcoin, investors enjoy greater privacy than in the case of CBDCs, as the transactions are pseudonymous. In the case of CBDCs, investors are subject to compliance measures and need permission to engage in transactions that take away the control and freedom of investors. Bitcoin and other cryptocurrencies are a lightning-fast, efficient and cheaper way to conduct financial transactions, while CBDCs are much slower and much more complex in nature due to control and subject to bureaucratic processes. This could go against its primary objective and drive potential investors to Bitcoin.

The benefits of Bitcoin are there for all to see and cannot be refuted in any way. However, there are investors who prefer the control and transparency associated with CBDCs over that of the anonymity of Bitcoin. With more than 130 countries exploring pilots at various advanced stages of developing, testing or launching their own CBDCs, it is clear to see that governments around the world have taken the rapid explosion of Bitcoin and other cryptos very seriously to address the instability of the central currencies or legal tender of their economies. Less than a month ago, blockchain analytics platform Chainalysis released its 2023 Global Crypto Adoption Index report showing that India ranks first in terms of grassroots cryptocurrency adoption.

Despite all the efforts of the Government of India, its challenging tax and regulatory regime, India’s rate of adoption of Bitcoin and other cryptocurrencies has skyrocketed. The raw estimated crypto value received in India alone in the year between July 2022 and June 2023 stood at $250 billion. Both Bitcoin and CBDCs are digital currencies, but investing in Bitcoin over CBDCs reveals more advantages than disadvantages due to its inherent features of decentralization, privacy, financial inclusion and innovation. This has convinced investors to believe that Bitcoin and other cryptocurrencies are a more powerful alternative to CBDCs and traditional currencies.

The Bitcoin vs. CBDCs debate is not one that is going to subside anytime soon. However, as things stand today, Bitcoin and cryptocurrencies are supported by a global network of traders and miners, while CBDCs are still nothing more than pilots and are still nothing more than an idea or concept undergoing various levels of research and development not undergo Therefore, it is critical for investors looking to invest their hard-earned money in any kind of digital currency to stay abreast of this rapidly changing world and monitor the impact of both Bitcoin and CBDCs on their personal investment strategies.

The author is co-founder and CEO, GoSats

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