What Is a CBDC? And, Is It Crypto?

What Is a CBDC? And, Is It Crypto?

What Does CBDC Stand For?

CBDC stands for Central Bank Digital Currency.

What Is a CBDC?

CBDC is money controlled by a central bank (e.g. the Bank of England). They have complete control over it; they’re able to print more money, and even freeze accounts from spending it.

Also, it’s digital, making it easier to control than traditional fiat money.

In the current system, what you perceive as your digital money (e.g. your bank balance on a mobile app) is simply debits and credits between providers. They don't physically have your cash in their reserves. Meaning, you technically don't own your balance, the bank is just in debt to you for it.

A lot of countries are looking to implement this form of currency, as it gives them more power over the monetary system within their borders. It’s also seen as a governmental response to the rise of cryptocurrency. Decentralized finance threatens their power, so why not replace it with something that looks, sounds, and feels like a cryptocurrency but isn't one?

no man should have all that power kanye west gif

Is CBDC a Cryptocurrency?

In short, no.

This is because CBDCs don’t use the blockchain, which is the core technology of cryptocurrencies. Also, cryptocurrencies aren’t issued by central banks. They’re completely decentralized or issued by a private company.

One thing they do have in common, however, is that they’re both hard (or impossible) to counterfeit. For crypto, this is done through the blockchain. For CBDCs, this is due to central banks having power over the money.

A CBDC's price is pegged to the currency of the nation, preventing the volatility some cryptocurrency assets see. In this sense, it’s similar to a crypto stablecoin, such as USDT. This stablecoin's price is pegged to the US dollar using a 1-to-1 reserve of US dollars. It’s safe to assume that central banks will use its reserves to back up their CBDC, just like USDT.

What Types of CBDC Are There?

There are two types of CBDC: retail and wholesale. Bear in mind that a retail CBDC could also be wholesale (and vice versa) — they’re not mutually exclusive.

Let's go through what they are.

Retail 👕

Retail CBDCs are used by consumers and businesses for all types of payment. From groceries to savings to a new gaming set-up, CBDCs are what you use.

There are two ways the public could access their retail CBDCs.

The first is a token-based retail CBDC. In this system, you’re given keys to access your money — similar to a cryptocurrency wallet.

Alternatively, account-based retail CBDCs could be issued. An account will be made to represent your digital identification, sort of like a PayPal account.

Wholesale 🏦

Wholesale CBDCs can only be used to transfer money between banks and central banks, or between banks with accounts at the central bank.

As a member of the public, it won’t affect you all that much. It will simply help make the banks run smoother behind the scenes.

Are CBDCs Good?

It depends on who you ask.

They have both positives and negatives. Let's break it down.

Pros 🟢

Possibly the biggest benefit would be quicker transfer times between citizens of the same country — maybe even speeding up cross-border payments. Not to forget, minimal to no fees.

Currently, we pay up to 10% for transactions and we may wait up to a week for it to be cleared. We can all agree this isn't good enough– CBDCs fix that.

As they are, by design, state-issued and controlled, it allows for the development of monetary policy in a country. In the present system, it takes months of research to properly understand the macroeconomic situation of a country. CBDCs allow the state to run through the country's finances with a fine-tooth comb, revealing issues quicker. This helps the state develop policies faster and more efficiently.

It’s impossible to overlook the increased level of security CBDCs give a government. They bring an elevated understanding of the incomings and outgoings of a state's citizens, preventing money laundering, counterfeit money, tax evasion, and more.

Cons 🔴

CBDCs give the government more control. They’re able to freeze accounts, reverse transactions, and prevent payments. In a time where people trust the government less than ever before, do we really want to equip governments with more tools to control their citizens?

The adoption of CBDCs resulted in large financial restructuring. This caused serious disruption both economically and in our day-to-day lives. However, some would argue this is a short-term risk worth taking for long-term gain.

To use this new type of currency, users require a level of computer literacy. Can you imagine your grandparents using digital money apps?

The technology is largely inspired by (and possibly a response to) cryptocurrency but it removes a key element that makes crypto so great — decentralization. Instead, it gives all power to the government. And, now we're back to our first negative of CBDCs. Basically, it gives a lot of power to governments and people think that’s bad.

What CBDCs Already Exist?

At the time of writing this, there are nine launched CBDCs. They’re in:

  • The Bahamas
  • Antigua and Barbuda
  • St. Kitts and Nevis
  • Montserrat
  • Dominica
  • Saint Lucia
  • St. Vincent and the Grenadines
  • Grenada
  • Nigeria

An additional 15 countries are piloting them (including China), 16 are developing them (including India), and 40 countries are in the research phase (including Germany).

It’s clear that governments from across the world are interested in the development and implementation of CBDCs.

Nigeria's CBDC: A Closer Look

The most notable country with a CBDC already launched is Nigeria.

eNaira is an account-based retail CBDC. Since its launch in October 2021, $1.21 million USD eNaira has been minted.

To access your money, you must sign up with Nigeria's BVN bank identity. Some would worry this is alienating the already marginalized unbanked population. However, their next phase focuses on enrolling their unbanked population with a national identity (NIN).

The amount of personal information provided dictates how much users can spend using their account. For example, with only a phone number and verified national identity, you can make payments of up to 121 USDa day. This figure rises up to 484 USD for the next level of identity verification — a low-level bank-approved account.

eNaira came only a few months after the Central Bank of Nigeria banned cryptocurrency activity.

The Eastern Caribbean CBDC: A Closer Look

As we said earlier, retail and wholesale CBDCs aren't mutually exclusive. Eastern Caribbean CBDC, DCash, is an example of this.

Launched in December 2021, the retail and wholesale CBDC uses both an account and token-based system to access your money.

DCash is currently available in every Eastern Caribbean Central Bank member — except Anguilla.

What Is the United States Doing With CBDCs?

The United States is currently in the research phase for retail CBDCs.

A report released by the Federal Reserve in January 2022, highlighted the benefits of CBDCs and urged Congress to consider them. A few months later, Biden signed an executive order which called for the country to "explore a U.S. Central Bank Digital Currency".

The US Treasury Secretary, Janet Yellen, has said, “It could result in faster, safer and cheaper payments, which I think are important goals.”

As we've discussed above, CBDCs have been successfully implemented in countries already. However, they’re significantly smaller than the United States. This is a major hurdle and will be one of the main issues focused on when researching CBDCs.

What Is the United Kingdom Doing With CBDCs?

Since April 2021, CBDCs have been researched through a collaboration with the Treasury and the Bank of England. At the same time, the CBDC Engagement Forum and CBDC Technology Forum were created to aid the country's efforts in the space.

Nicknamed "Britcoin", the digital currency would not look to replace banknotes but to complement them.

The British Chancellor, Rishi Sunak, released a video celebrating the G7's launch of "a set of public policy principles for retail CBDCs". This video went down like a lead balloon, most notably being criticized by British activist, Maajid Nawaz, on the Joe Rogan podcast.


It’s clear that CBDCs will play some part in our future. Either as a widespread international retail currency or simply as a way to smooth over international bank-to-bank transfers.

This article is a part of the Hashnode Web3 blog, where a team of curated writers are bringing out new resources to help you discover the universe of web3. Check us out for more on NFTs, DAOs, blockchains, and the decentralized future.