Since central bank digital currencies (CBDCs) are showing more exposure to the market, taming illegal activities requires a delicate balancing act between data access and user privacy protection, according to HashCash Consultants CEO Raj Chowdhury.
Chowdhury pointed out:
“CBDC projects need to address their drawbacks and act considering the potential side-effects. They may lead to the disintermediation of the nation’s banking sector, and lend the government an upper hand in state-sponsored censorship of a citizen’s spending patterns.”
Even though the CBDC idea is revolutionary, Chowdhury believes caution should not be thrown to the wind because of possible dangers regarding storage.
He noted:
“The working principles of CBDC are converse with the ideals behind Bitcoin and blockchain technology. A centralized storage system has grave security risks, which will likely diminish the anonymity and privacy normally associated with conventional cash or crypto transactions.”
Therefore, extensive research is necessary before launch to iron out possible difficulties.
The issuance of CBDCs seems to be a race against time because, in the eyes of many nations, owning a CBDC is instrumental in having control of the global markets.
For instance, the Reserve Bank of Australia (RBA) recently launched a year-long trial to explore innovative use cases and business models of a CBDC, Blockchain.News reported.
Therefore, the pilot project aimed at getting better insights into the regulatory, legal, and technological aspects of CBDCs.
Meanwhile, CBDCs are expected to drive the financial inclusion of nearly 1.7 billion people left out of the banking system once implemented.
This attribute might be propelled by the fact that CBDCs are digital assets pegged to real-world assets and backed by the central banks. As a result, they represent a claim against the bank exactly the way banknotes work.Image source: Shutterstock
