MCS | The Rise of The Central Bank Digital Currency

MCS | The Rise of The Central Bank Digital Currency

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CBDC, Central Bank Digital Currency, is a digital asset issued by the central bank. Like existing Bitcoin, it is created based on blockchain technology. This digital currency digitized the existing banknotes and coined currency by fixing the volatility at 1:1 value and status as a legal currency.

According to the CBDC Tracker, approximately 86% of CBDC’s ongoing research and development is conducted across 65 countries.

Source: https://cbdctracker.org/

Central Bank Digital Currency (CBDC) Tracker

The Bank of Korea is currently promoting open bidding for a business operator to participate in the CBDB simulation and plans to build a CBDC simulation system and test the virtual environment by the end of next year. The decrease in the use of cash has created the necessity of CBDC to gradually utilize and expand the use of the currency by issuing money in electronic form.

The question is, what will be the implication, and will Bitcoin take a hit from the introduction of CBDC into the real world?

This is such an essential question because both currencies are based on blockchain technology. Blockchain uses the distributed ledger technology to manage the transaction data, preventing data forgery and maintaining security.

CBDC uses a private blockchain among blockchains, while Bitcoin uses a public blockchain. In a private blockchain, only the central bank and some other financial institution will have access to verify the transaction data, whereas, in a public blockchain, the transaction data can be verified by anyone who made a transaction using coins such as Bitcoin and Ethereum. In other words, the public blockchain is the definition of a truly decentralized system as its inherent anonymity and censorship resistance, which have given it a higher value. In addition, as cryptocurrency is created and managed by smart contracts on the blockchain, it can also be used for specific services or products such as utility tokens to differentiate and gives it more value than CBDC.

The issuance plan by The Bank of Korea and The Central Bank of each other countries can be seen as a declaration of war, a fierce battle of decentralization as opposed to centralization. It’s crucial to have a more open discussion and compromise in finding the best way for both technologies to coexist.

But perhaps it will be more realistic to assume that both will coexist in the future through the unique feature of each technology?


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