New Money vs. Old Money

                                                                   ( Central Bank Digital Currencies vs. Cryptocurrencies)

The pandemic presented many of us with the time we always wanted to explore and learn new things. One of things persons around the world focused on was cryptocurrency; whether creating, and or buying it. The spotlight then shifted to Central Bank Digital Currency (CBDC) which is sometimes mischaracterized as a cryptocurrency.

Then came the skepticism, and declarations of signs and wonders: it’s the mark of the beast, another sign of a new world order, and just another way to track and control people. I do not know the answer to those views but we can explore the difference between CBDCs and cryptocurrencies.

To truly understand the difference, make your own assessment, and ask your financial advisors the right questions there are some key terms you should try to understand. I have simplified some of the terms below.

Money

A medium of exchange and store of value.

Currency

A system of money usually in general use in a country e.g. The Jamaican dollar

Electronic Money (E-Money)

Prepaid monetary value stored on a device for example, gift cards.

Digital Currency

This is a digital representation of a currency, for example central bank digital currencies.

Central Bank Digital Currency (CBDC)

The digital representation of a fiat currency governed by the relevant central bank. There is no difference between this digital currency and the actual physical currency.

For example:

• • • • Jamaica’s Jam-Dex
      • The Eastern Caribbean’s DCash
      • The Bahamas’ Sand Dollar

Virtual Currency

A digital representation of value that exists only in electronic form. It is stored and used as a medium of exchange through the use of governing software. For example: cryptocurrency.

Cryptocurrency

A virtual medium of exchange only. It does not have a tangible/physical representation. For example: Bitcoin (BTC), Ethereum (ETH)

Based on the definitions we know that virtual currency is a form digital currency.

What makes cryptocurrency special?

The fact that it only exists virtually; in the virtual world. Which means, unlike other digital currencies such as CBDCs, it does not have a real life, physical version.

How are human beings using cryptocurrency if it only exists in the virtual world?

They do so by using crypto-wallets instead of bank accounts. Think of crypto-wallets as serving a similar purpose as your real-life wallet, or purse.  Crypto-wallets can either be a software, or a physical device.

Crypto-wallets are not limited to storing/recording cryptocurrencies; they can store other crypto-assets such as Non-Fungible Tokens (NFTs).

How do crypto-wallets work? They work based on a combination of a private key (think of this as your bank card’s pin number), and a public key (think of this as your bank account number).

Are these crypto-wallets safe?  Well, the security lies primarily with you. You are responsible for choosing a crypto-wallet that you think meets your security needs. You are also responsible for who has access to your private key.

If you lose the keys, you have basically lost the crypto-assets in your wallet. Yikes!

With bank accounts, you might be inclined to blaming the bank, and if you have lost your bank card you can get it replaced. Your crypto-keys are created using cryptography, which is a complex mathematical function which is extremely difficult to re-trace in order to identify your keys.

Where does cryptocurrency get its value?

Buyer beware!

This question brings to mind what many consider to be the main disadvantage of cryptocurrency. Cryptocurrencies, and other crypto-assets generally have value because the public says so; the greater the demand for a particular cryptocurrency, or crypto-asset the greater its value.

The value of cryptocurrencies, and crypto-assets is generally considered unstable which is why you must do your research, and be sure about why you are buying a particular cryptocurrency, or other crypto-asset. There are currently over 10,000 cryptocurrencies; some of which have been created solely for scamming.

What about CBDCs?

They are sometimes promoted as safer than cryptocurrencies. How safe they are will be based on the technology, and security standards used. Some use blockchain technology (e.g., the Eastern Caribbean’s DCash) which is used by many cryptocurrencies. Jamaica opted not to use blockchain technology. The BOJ instead chose to use “technology that could easily integrate with its real-time settlement system, known as JamClear.”

What about the level of pseudonymity offered by cryptocurrencies, which is often confused with anonymity? CBDCs offer privacy, but not the level of pseudonymity cryptocurrencies offer. In any event, the current level of pseudonymity in the crypto industry is likely to decline with the expected regulations geared towards protecting consumers.

If you would like more informational content on the crypto-world, that is not financial advice, you can follow me on Instagram.

Until next time, stay safe.

Disclaimer by the author: Nothing in this article is to be taken as legal advice. You should consult an attorney regarding your specific case. All liability with respect to actions taken or not taken based on the contents of this article are hereby expressly disclaimed.