Many confuse digital currency with cryptocurrency, but it's important to note that digital currency simply refers to any currency that exists in a digital form. This includes cryptocurrencies, CBDCs, and stablecoins. Each of these types of digital currency serves a different purpose, but they all have the potential to contribute to the economy in 2023. To gain a better understanding of these digital currencies, it's important to learn more about each one individually.
What is cryptocurrency?
A cryptocurrency is a digital or virtual currency that uses cryptography for security and is decentralized, allowing to make transactions without intermediaries such as banks. It operates on a technology called blockchain which is a digital ledger that records all transactions on a network and is verified by network participants called miners. Cryptocurrencies can be used to purchase goods and services or held as an investment, their value is determined by market demand and can fluctuate greatly.
What is a CBDC?
A Central Bank Digital Currency (CBDC) is a digital version of a country's fiat currency, issued and backed by the central bank. A CBDC can be used to make electronic payments, just like traditional fiat currency can be used to make physical payments. CBDCs differ from cryptocurrencies, in that they are issued and backed by a central authority (i.e. the central bank) rather than being decentralized and based on blockchain technology. Because of this, CBDCs are considered to be more stable and less volatile than cryptocurrencies and can be used for day-to-day transactions.
What is a stablecoin?
A stablecoin is a type of cryptocurrency that is designed to have a stable value, often pegged to a fiat currency such as the US dollar, or to a commodity like gold. The value of a stablecoin is intended to remain relatively stable, even as the prices of other cryptocurrencies can fluctuate greatly. There are different types of stablecoins, each with its own mechanism for maintaining stability. Stablecoins can be used for a variety of purposes, such as making cross-border payments, hedging against market volatility, or as a store of value.
How can these digital currencies help boost the economy?
Here are some of the ways these digital currencies can benefit the economy more than fiat currencies:
Promote financial inclusion
Digital currencies can provide financial services to those who are currently unbanked or underbanked, such as people living in rural or remote areas, or individuals who lack access to traditional banking systems. This can lead to increased economic participation and an improved standard of living for these individuals.
Faster and cheaper transactions
Digital currencies can facilitate faster and cheaper transactions than traditional banking systems. Transactions can be processed almost instantly, without the need for intermediaries such as banks, and can be done at a lower cost. This can lead to increased efficiency and cost savings for businesses and individuals alike.
Increased competition
Digital currencies can increase competition in the financial industry by providing new ways to make payments and store value. This can lead to better products and services for consumers, as well as lower costs.
Innovation
Digital currencies can drive innovation in the financial industry, leading to the development of new products and services, such as smart contracts, decentralized finance (DeFi) applications and other blockchain-based solutions.
Borderless transactions
Digital currencies can facilitate borderless transactions, making it easier for individuals and businesses to conduct global trade. This can lead to increased economic activity and improved international relations.
Overall, digital currencies such as cryptocurrencies and CBDCs have the potential to benefit the economy in 2023 by increasing financial inclusion, facilitating faster and cheaper transactions, driving innovation, and enabling borderless transactions. As a result, they can play a significant role in growing the economy, especially in developing nations.
(The author is the CEO and co-founder of Mudrex, a global crypto investing company)
Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP Network Pvt Ltd. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.