How Bitcoin is giving birth to central bank digital currencies

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Bitcoin, the king of cryptocurrencies, is the reason behind the rise of central bank digital currencies. Yes, the pioneer of decentralized finance is prompting many central banks to start researching on cryptocurrencies and bring an element of centralization to the digital currencies.

Many banks across the world, both private and government, have either launched or are in the process of launching their very own digital currencies. From Chinese digital Yuan to Facebook’s Libra, the rise of centralized digital currencies is threatening the very ethos of decentralized finance. As per a new report, Bitcoin is the foremost reason why many banks are taking the cryptocurrency route.

Bitcoin is prompting research into CBDCs

Most central bank digital currencies are currently in muddy waters. Their jurisdiction, legality, practical-use cases, and implications are unclear. So far, these are just attempts by central banks to enter the decentralized realm, albeit in a centralized manner. For example, Facebook’s Libra is merely trying to project itself as a global currency that is borderless and helps access financial services via Facebook. No wonder it carries behind it the power of Facebook.

Compared to digital currencies, Bitcoin is far ahead in terms of acceptance and real-world implications. It is not only rising in terms of value but also as a mainstream financial tool. BTC has the largest market cap among cryptocurrencies. Now, many investors compare Bitcoin with a long-term store of value, especially considering its performance during COVID-19 market mayhem.

Central banks and governments are worried that Bitcoin can become a reserve asset or safe-haven asset that may challenge fiat currencies. BTC is emerging as a tool to ward off the ills surrounding fiat currencies. Thus, they are building their very own central bank digital currencies.

Central bank digital currencies are still a thought

MIT Digital Currency Initiative report states that financial realm has a chance to build a truly digital asset with inherent value. Bitcoin started a trend which many banks today follow. Bitcoin accelerated the concept of digital currency.

Now, governments have the opportunity to shape a new cryptocurrency in their own imagination. Of course, central banks and governments can bring in many stakeholders to back their initiative.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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