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February 22, 2023

What is Central Bank Digital Currency? How does it differ from Cryptocurrency?

Are you confused about the difference between a Central Bank Digital Currency (CBDC) and cryptocurrency? Don’t worry - we have you covered. Both are digital forms of currency, but there are several key distinctions that make them unique from one another. Let’s explore what makes each of these digital currencies different and why understanding the differences matters.

What is Central Bank Digital Currency (CBDC)?

A CBDC is a form of digital currency created by a country's central bank that can be used for everyday transactions such as buying goods or services. It is similar to traditional physical money, except it exists entirely in digital form. The main difference between CBDCs and physical cash is that they are not issued by commercial banks or other private entities, but rather by central banks - the monetary authorities of countries. This means that CBDCs are backed by the government and therefore considered to be legal tender in their respective countries. This also allows governments to control exchange rates and inflation more easily than with regular currencies.

What is Cryptocurrency?

Cryptocurrencies are digital assets designed to act as a medium of exchange using cryptography to secure transactions, control the creation of additional units, and verify transfers of funds. Unlike traditional currencies, cryptocurrencies operate independently from any central bank or government authority so their value fluctuates depending on market demand. Cryptocurrency networks use decentralized ledgers (blockchain) which store all transaction data securely in an immutable format where it cannot be tampered with or altered in any way. This makes them ideal for global payments since there is no need for third-party intermediaries such as banks or payment processors, thus allowing users to transfer funds quickly and securely anywhere in the world without having to worry about exchange rates or transaction fees associated with traditional financial institutions.

Central Bank Digital Currencies (CBDCs) and cryptocurrencies both offer exciting new opportunities when it comes to transferring funds globally. While both use blockchain technology for secure transactions, there are key differences between them; most notably that CBDCs are backed by governments whereas cryptocurrencies operate independently from any central bank or government authority and their values fluctuate based on market demand. Understanding these differences can help you decide which one best suits your needs when making transfers around the world!

Jacques Potts - Sr. Marketing Manager at Ledgible and experienced financial author, marketer, and crypto expert. His work has been featured on The Street, Project Serum, FirstTrade, and Invstr.
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