Reserve Bank on the planet were actively versus making use of cryptocurrency from its creation. Recent advancements show that a lot of central banks now see the requirement to drive their traditional fiat currencies from physical to digital, therefore developing a digital kind of currencies like Dollar, Naira, Pound, Euro, Rand, and so on
That was the statement made by the guv of the main bank of Nigeria on Digital currency.
It is no news that earlier in the year, the CBN provided a ban on the trading of cryptocurrency and digital currency in Nigeria. Now, a couple of months later on the guv of the CBN has actually specified that Nigeria has room for digital currency since it will be introducing hers.
In this post, we will be going over things you need to understand about the CBDCs, their benefits and disadvantages, and their relationship with Bitcoin.
Read about the impact of the crypto restriction in Nigeria
Intro to CBDCs
Thousands of years back, trade by barter was the appropriate way to make transactions. Afterwards, the coin was used as its replacement, the Chinese then created the very first paper currency which was used for several years till the late 19 th century where there were so many efforts to develop the very first cryptocurrency but wasn’t effective up until 2009 when the very first cryptocurrency called Bitcoin was created.
People liked the concept of Bitcoin decentralization and privacy and saw it as a chance to make transactions without the close tracking of the federal government or any other third party. Individuals learned how to mine bitcoin, buy Bitcoin and use it for deals and likewise as a store of wealth.
Central Banks across the world saw it as a risk to their currencies and after that, some countries released a restriction on it. However, people still buy Bitcoin despite their federal government ban and since one of its advantages is privacy, the government could not discover.
While nations were banning it, China found a way around it.
Surprisingly, Nigeria is likewise planning to follow suit by creating its digital currency which is scheduled to be launched prior to completion of 2021.
CBDC is an acronym for the Central Bank Digital Currency.
Advantages of CBDCs
The Central Bank of Nigeria will not adopt new technology if it isn’t in the best interest of Nigerians. Some advantages of the CBDCs includes:
- Boost technical and functional opportunity
- Decrease in the expense of having to mint and print physical currency
- There will be a more efficient ways of settlement since there will be no requirement for intermediaries.
- Boost in financial inclusion of citizens because it will become really simple and low-cost to produce an account.
- Reduction in fraudulent activities, counterfeit cash in blood circulation, and armed robbery considering that there will be increased oversight of motion of funds.
- And the most crucial benefit for the central bank is increased transparency. The federal government can keep track of transactions of its citizens and the citizens can monitor the deals of the federal government.
Disadvantages of CBDCs
It is almost particular that what has an advantage needs to certainly have a downside. Same for the CBDC, there are definitely some downsides and they consist of:
- It may result in heavy centralization by the Nigerian federal government
- There will be close tracking of Nigerians transactions
- The use of CBDCs may widen the gap in between the rich and the bad
- A substantial percentage of Nigerians are not versatile with innovation
- The variety of people with a savings account is less than half of the population of the nation
- It can lead to enormous pumps and dumps.
The relationship in between Bitcoin and CBDCs
Should you still find out how to buy Bitcoin or perhaps really proceed to buy Bitcoin when there is the alternative of the Reserve bank Digital Currency? Well, this brings us to the similarities between Bitcoin and CBDCs. Both are certainly digital currencies that can be kept digitally and be used to carry out transactions remotely. An important difference between the 2 is decentralization.
The CBDCs will be provided by a federal government body and will be managed and kept track of which implies transactions finished with it will be carefully kept track of. This makes CBDCs centralized and absolutely breaks what Bitcoin and altcoins represent. Another is the problem of privacy. Anyone can purchase Bitcoin of any amount without ever being seen. All you need is your wallet address and the seller’s wallet address. Nevertheless, it is essential for us to discuss that Bitcoin and other altcoins are riskier than the CBDCs.
In conclusion, the reality that the federal government of Nigeria may produce its digital currency is a big plus for crypto lovers in Nigeria and is a sign that the federal government is looking to tap into the chances that come with the usage of digital currencies.