Bitcoin Vs. CBDCs: Analyzing Universal Access In Digital Currency

For millennia, cash and its equivalents have reigned supreme, acting as the undisputed anchor of commerce and ensuring universal participation in the world’s markets. The nearly universal acceptance of various cash types, from gold to U.S. dollars, underscored the role of cash as an unparalleled tool for financial inclusion. However, now we have transitioned into the digital age, our relationship with money is experiencing a shift.

The argument to permanently keep cash alongside a digital equivalent is persuasive when looking at alternatives with regard to inclusion and privacy. The digital cash revolution was spearheaded first by bitcoin and then by other cryptocurrencies, which has led to the birth of Central Bank Digital Currencies.

Bitcoin is the digital contender to cash. While nations work towards digitizing their currencies, bitcoin and ecash on bitcoin layers carve out a distinct niche, offering a unique proposition: a global, immutable, and accessible digital cash open to all.

The Evolution Of Money: From Tangible To Digital

Historically, the value and trust in money have been anchored in physical tangibles—be it gold, silver, or the paper currencies that governments issue. In the digital era, our relationship with money is being redefined. Digital transactions, online banking, and electronic payments paved the way for this shift, but it’s the rise of CBDCs and cryptocurrencies that may represent the most transformative phase in this evolution.

CBDCs: Central Banks’ Answer To The Digital Age

CBDCs are the digital counterparts of a country’s fiat currency, designed to exist alongside traditional cash. While CBDCs might use blockchain technology, similar to some cryptocurrencies, they remain anchored in established financial systems and are governed by the country’s central bank.

Several nations are at different stages of CBDC development and deployment. China, for instance, has taken a pioneering role with its digital yuan and is in the final stages of their pilot. The European Central Bank and the U.S. Federal Reserve are still in the research and contemplation phase.

Compared to the legacy system, CBDCs can modernize outdated payment systems, streamline monetary policies, and offer faster digital transactions. However, they also come with challenges. Their centralized nature could result in access barriers, making them less inclusive with privacy concerns.

They will have programmability features and offer functions such as:

1. Individual customization
2. The ability to freeze or seize assets
3. Set holding limits
4. Automate tax and fine deductions
5. Control purchases
6. Set spending and expiry dates
7. Apply location-based restrictions

While some of these features are present in today’s banking, a CBDC would integrate them more comprehensively and remove any friction leading to greater control.

Certain restrictions or the need for traditional banking interfaces could inadvertently exclude a significant portion of the global population without access to traditional banking. According to the World Bank, approximately 1.4 billion adults lack access to banking services. These individuals, often women, are typically less affluent, have limited education, and reside in rural regions, making them challenging to connect with.

Fortunately, many have access to mobile devices, opening them up to new forms of payment. As per GSMA Intelligence, by the end of 2022, over 5.4 billion people globally subscribed to a mobile services; this figure is expected to rise to 6.3 billion by 2030. This surge in mobile technology opens people up to global alternatives. CBDCs are intrinsically national, which will limit their utility in an increasingly globalized world.

Due to their centralized nature, CBDCs would be more susceptible to cyberattacks due to single points of failure. They also mirror traditional fiat currencies and don’t have a fixed supply. This poses an inflation risk if central banks produce them excessively.

Bitcoin: A Decentralized Vision of Financial Inclusion

Then there’s bitcoin—a decentralized, open-source digital currency that operates independently of any central authority. It offers a universally accessible and neutral monetary system, providing opportunities for financial inclusion previously unthinkable.

Bitcoin’s appeal is multifaceted:

Decentralization: Bitcoin operates on a peer-to-peer network, ensuring no single entity has control and offering financial freedom and neutrality.

Accessibility: Anyone with a mobile phone can access bitcoin. Solutions like TxTenna allow bitcoin transactions without internet access, using radio frequencies—a boon for regions with limited internet connectivity. The proliferation of mobile services globally represents most of the world’s adult population.

Innovative Solutions: Platforms like the Lightning Network enhance bitcoin’s usability by facilitating quick, low-cost transactions.

Global Reach: Bitcoin is truly international, making it an attractive option for cross-border transactions and remittances.

Open Source: A global community can verify, audit, trust, and improve code.

Privacy: Bitcoin provides a pseudonymous transaction system, enhancing user privacy compared to traditional banking yet remaining transparent on its public ledger.

Global Access To The Economy Is Crucial For All

Financial inclusion is not solely about having a bank account but about ensuring equitable access to the global financial system. As the world grapples with the transformation of money, both CBDCs and bitcoin offer compelling visions of the future. While CBDCs offer potential efficiencies to an analogue traditional financial system, bitcoin offers an open, global, immutable, decentralized alternative that could reshape global finance with opportunities to truly democratize financial access.