The global finance ecosystem is taking a different shape with the advent of cryptocurrencies. With Facebook coming into this line of business with 2 Billion users with them, Bitcoins and Ethereum have taken a step forward to combat competition.
The monetary landscape is entirely different now. As such, the countries have accepted and not accepted the cryptocurrency as such. At the same time, they are contemplating different modes to avoid the traditional banking system to be avoided.
Stablecoin is a cryptocurrency that aims at regulating certain norms that the other counterparts do not have and poses a serious threat to the banking world.
At the same time, CBDC is a new form of cryptocurrency that is regulated by the countries that have started emerging stronger.
Key Takeaways
- Stablecoins are cryptocurrencies designed to maintain a stable value, pegged to a fiat currency, such as the US dollar, to reduce volatility and increase usability for everyday transactions.
- Central bank digital currencies (CBDCs) are digital versions of a country’s fiat currency issued and backed by the central bank, offering the benefits of digital payments while retaining the stability and security of a centralized financial system.
- While stablecoins and CBDCs are digital currencies, they have different issuance methods, regulations, and stability methods.
Stablecoin vs CBDC
Stablecoins are cryptocurrencies designed to maintain a stable value relative to a particular asset or group of assets, providing a more stable store of value than traditional cryptocurrencies. CBDCs are digital versions of a country’s fiat currency, designed to provide a secure and reliable means of payment and exchange.
Stablecoin is yet another completely decentralized cryptocurrency. That means to say that there is no regulating authority for the monetary value.
However, Stablecoin is working around the problems the other cryptocurrencies face to make it available to the general public. Indeed, they are attempting to merge the gap between fiat currencies and digital currencies.
CBDC is a regulated monetary system that shall be initiated by the governments of the nations. Though the system is still unavailable in any country, the counter-attack factor CBDC has over cryptocurrency is enormous.
Yes, CBDC is centralized and has complete security for every transaction made. Most importantly, it is backed by foreign reserves or fiat currencies of a country.
Comparison Table
| Parameters of Comparison | Stablecoin | CBDC |
|---|---|---|
| Regulation Authority | There is no regulatory authority in the case of Stablecoin. | A country’s Central bank shall regulate the monetary value of CBDC. |
| Basic Functionality | Decentralised Cryptocurrency | Centralized Cryptocurrency |
| Mode of Business | Stablecoin Democratizes the Financial systems of the world. | CBDC attempts to preserve the oligopoly of the traditional banking system |
| Money Infusion | Stbalecoin uses private money. | CBDC uses private money but guarded by reserve assets of the country. |
| Exchange Value | Does not have any exchange value with any other currency | Has complete control over currency exchange, and it is possible with CBDC. |
What is Stablecoin?
Stablecoin is a new branch of cryptocurrency. It offers price stability and is backed by the reserve asset. Stablecoin has gained importance in recent times as they offer
- Instant processing and security
- Stable valuations of digital currency
- Extreme privacy in payments
Stablecoin has set a limit for its market value. Indeed, it is from an external reference. It can set its limit either with USD or even with the gold price.
Bitcoin is the most popular cryptocurrency so far, and Stablecoin is achieving its place with its dynamic and concrete features.
The former is not suitable for day-to-day life for the general public, whereas Stablecoin aims at offering the day to day transactions hassle-free.
Incidentally, a currency must offer an asset value that is stable and also allow the people to have saving strategies behind it. Stablecoin is constantly working on it, which has made it popular in recent times.
Also, the value of the other cryptocurrencies is not stable, and Stablecoin grabs this opportunity.
Many Cryptocurrencies lack a few features that fiat currencies have. Those are the main reasons for volatility in price. At the same time, cryptocurrencies do not have any backing from the reserves as fiat currencies have.
Stablecoin aims to bridge this wide gap between fiat currencies and cryptocurrencies.
What is CBDC?
Central Bank Digital Currency is a centralized monetary system that is governed by a particular country’s finance authorities. A nation’s official currency is represented in a digital form. It represents the fiat currency of that particular country.
CBDC is issued by a nation and is monitored by them duly. Many governments in several countries are analyzing the ways to circulate and issue CBDC. But none of the nations has issued them so far.
CBDC is under a lot of contemplation as it is mainly used to combat cryptocurrencies. Ideally, CBDC is controlled by a country’s central bank, and any country shall have a strong backup in the form of a reserve asset.
The fiat currency normally is gold, and CBDC is calibrated using that scale.
In general, CBDC is a regulated form of cryptocurrency which is governed, issued and monitored by a government of a country. CBDC is a unit and can be used to make any payment, just like the paper currency.
As the paper currency has a serial number mentioned in the note, every CBDC unit shall have a unique number too.
CBDC mainly aims at
- Security of the payments made
- Proper regulation of the transaction system
- Reserved money to back the circulation
- Protect the traditional banking system
Main Differences Between Stablecoin and CBDC
- The main difference between Stablecoin and CBDC is the former is not regulated or monitored by any country, while CBDC is regulated and monitored by a nation.
- Stablecoin has no exchange value in the market with any of the currencies, not even with the fiat currency. As a government issues the CBDC, it can be easily converted to fiat currency or have an exchange value for any currency in the world.
- Incidentally, the privacy and security features with Stablecoin are limited, while CBDC shall have massive security features embedded in it.
- Stablecoin aims at changing the financial system of the world, while CBDC attempts to curb unregulated currencies in the world.
- Stablecoin does not have any taxation aspects connected to it, while CBDC is indeed connected to taxation policies framed by a particular country.
- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3513422
- https://core.ac.uk/download/pdf/286731429.pdf
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