Governments worldwide are exploring Central Bank Digital Currencies (CBDCs) — a digital version of a country’s fiat currency issued and regulated by central banks.
CBDCs are designed to bring digital efficiency to fiat currencies, but they also introduce new privacy risks. Unlike cash transactions, which provide financial anonymity, CBDCs could make it easier for governments to directly track transactions and potentially even restrict what you can spend your money on.
This further undermines people’s economic sovereignty and runs counter to the goal of most digital currencies.
Bitcoin, however, offers a decentralized alternative — one where individuals retain control over their own wealth. Because Bitcoin transactions do not require intermediaries, they provide greater financial autonomy and resilience against centralized overreach.
As governments continue researching CBDCs, we all must consider what kind of financial future we want. CBDCs would introduce new levels of digital efficiency and control to the current system, while decentralized digital currencies like Bitcoin offer a new path, prioritizing financial autonomy.
This article explains the two potential futures of money so you can make informed decisions about how to best manage your wealth in this changing financial landscape.
What is Bitcoin?
Bitcoin is a decentralized digital currency created in 2009 by an anonymous person (or group) under the pseudonym Satoshi Nakamoto. Bitcoin uses cryptographic principles to secure transactions. The Bitcoin network introduced a way of creating and maintaining a public, peer-to-peer ledger of all transactions without being controlled by any individual or institution.
Key features of Bitcoin include:
- Decentralization: No central authority controls Bitcoin.
- Blockchain technology: A transparent and secure distributed ledger records all Bitcoin transactions.
- Limited Supply: The total Bitcoin supply is capped at 21 million coins, making it inflation resistant and an effective way of storing value.
- Mining: New coins are generated through a process where computers solve complex mathematical problems to verify transactions and record them on the blockchain.
- Pseudonymity: While Bitcoin transactions are publicly recorded, they are not directly tied to personal identities.
- Transparency: All activity is public and visible on the blockchain, ensuring accountability.
Learn more about Bitcoin and how to get started with Bitcoin
What are CBDCs?
Unlike Bitcoin, which operates on decentralized networks, CBDCs are government-backed digital currencies designed to integrate directly into the current financial system.
Several governments are already exploring or launching their own versions:
- The European Union is working on the Digital Euro(nouvelle fenêtre).
- China has expanded its trials of the Digital Yuan(nouvelle fenêtre).
- The Bahamas launched the Sand Dollar in 2020.
- Nigeria introduced the eNaira in 2021, though its rollout has faced significant challenges.
In Nigeria, the government’s push towards a cashless economy with the eNaira triggered a public backlash. By most accounts, eNaira is a colossal failure(nouvelle fenêtre).
To drive adoption, authorities imposed cash restrictions, but this strategy only led to protests and demands to bring back paper money. Despite incentives like payment discounts and lifted access restrictions, less than 0.5% of the population uses the eNaira(nouvelle fenêtre), while over 50% have embraced cryptocurrency. Nigeria’s experience shows that advanced technology alone cannot drive adoption without public trust and acceptance.
Despite a questionable track record, however, more countries are developing CBDCs(nouvelle fenêtre). It raises a big question: Why?
Why are governments interested in CBDCs?
CBDCs could improve transaction efficiency and reduce costs, but they also raise important questions about financial autonomy. While governments have always wielded power over traditional currencies — regulating supply and managing inflation — CBDCs open up more invasive avenues for control than fiat currency.
Central banks would have direct oversight of digital transactions, raising questions about how governments would use this data. This direct link between the central bank and citizens’ wallets would also make it easy to lock people out of their funds.
Additionally, CBDCs could enable new policies, like negative interest rates or programmed spending restrictions(nouvelle fenêtre). While government officials generally discuss these measures as a means to support economic policy, it’s not hard to imagine how they could be abused:
- Negative interest rates effectively penalize your savings and force you to spend more. Similarly, CBDCs would still be affected by inflation as most of them are pegged to the national currency, which loses value as governments print more and more money.
- Programmable spending would limit what money could be spent on or restrict spending for specific individuals. Proponents say this could be an important tool to fight fraud, but it could just as easily be used to undermine competition in the market.
Under an authoritarian regime, CBDCs could be weaponized to target dissidents, restrict access for specific groups, or censor transactions that don’t align with state-approved behavior. CBDCs dramatically increase central banks’ control(nouvelle fenêtre) over their currency.
This is starkly different from Bitcoin’s decentralized nature, which is built to protect your financial freedom and sovereignty. BTC’s structure keeps control in your hands, making it difficult for a central authority to freeze, seize, or restrict your money.
Bitcoin vs CBDCs: Two different approaches
Some policymakers have expressed concerns about Bitcoin due to its decentralized nature, which makes it difficult for regulators to control financial flows and enforce monetary policy. While Bitcoin enhances personal financial sovereignty, government critics say they must limit decentralized digital currencies to fight money laundering(nouvelle fenêtre) and ensure economic stability(nouvelle fenêtre).
In response, several government officials have positioned CBDCs as an effective way to replace Bitcoin with a digital currency they can regulate. In 2021, The head of the Bank Indonesia said(nouvelle fenêtre), “A CBDC would be one of the tools to fight crypto.” Similarly, in 2021, after China cracked down on Bitcoin(nouvelle fenêtre), a deputy governor of the People’s Bank of China who worked on the digital Yuan said the central bank was still concerned about the threats to economic stability(nouvelle fenêtre) posed by digital currencies.
Even if economic stability concerns are valid, there’s no evidence CBDCs offer any solution, as individuals would still continue to use Bitcoin. Meanwhile, Bitcoin’s decentralized model continues to gain traction worldwide. As an open-source financial system, it offers an alternative for anyone who prioritizes self-custody and financial sovereignty.
A future of financial freedom is possible
Most CBDCs are still in their early stages, and some governments appear to be reconsidering them entirely after early challenges, such as Nigeria’s experience with the eNaira. In democratic nations, the people can write to their representatives or vote to shape how (or if) CBDCs are implemented.
The point is CBDCs are an imperfect answer to a problem that has already been solved. There’s no need to risk the potential surveillance built into government-backed, centralized systems, given that Bitcoin — a decentralized currency that gives you the keys to your wealth — already exists. And if you use Bitcoin, it’s much more difficult for a government to freeze your assets or track your spending.
You can take your first steps toward that control and autonomy today.
Proton Wallet offers a secure way to hold and manage Bitcoin, ensuring your financial future stays in your hands. As governments move to tighten their grip, Proton Wallet helps you protect your wealth and privacy, giving you a way to navigate your financial future on your terms.
Explore Proton Wallet today and ensure you stay in control.
