What is CBDC? Understand how it works

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Central Bank Digital Currency, or digital currency issued by central banks, works as a virtual version of a country's money. They already exist in several countries, including Brazil, which already has some of its transactions carried out with digital reals.

However, there are still many questions, such as “is CBDC a cryptocurrency?”, “what is the main difference between these digital currencies and cryptos?” and “why are central banks interested in issuing digital currencies?” And the question that everyone wants to know is: will digital currencies replace cash? If you also want to know these answers, keep reading!

What are the types of CBDC?
There are two types of Central Bank Digital Currency. Check out jamaica phone number list they are and the difference between them below!

Wholesale
It is used only between financial institutions, by commercial banks or in the interbank market. Its purpose is to make payments between national or international institutions more efficient, which, in their current form, are still very expensive and time-consuming.

Retail
Retail CBDC, on the other hand, focuses on the end consumer. The goals of this digital currency are to be an alternative to physical cash and act as an alternative to traditional bank deposits. For some countries, it has the potential to encourage commercial and financial participation by the unbanked.

Is CBDC a cryptocurrency?
Although CBDCs are digital currencies, just like Bitcoins and Dogecoins, they are not the same thing as cryptocurrencies. While the latter are private and decentralized, the former have none of these characteristics.

One of the main differences that we can highlight, in addition to the dynamics of creation — cryptos being created by private institutions and CBDCs by the governments of countries — is the decentralization technology.

The blockchain of a state-owned digital currency also tends to be non-open, meaning that transaction data, which is typically public to the entire world with cryptocurrencies, is more restricted and accessible only by government agencies.

Finally, no central bank in the world intends to create a digital version of its currency to function as a digital asset like other cryptocurrencies. In other words, CBDCs are designed for everyday use, such as payments, transactions and possibly stores of value, not as investments.