## CBDC vs Cryptocurrencies: What is it really and how does it work?

While everyone is talking about Bitcoin and Ethereum, the central banks of the world are quietly working on something equally important: **Central Bank Digital Currencies (CBDC)**. But what sets them apart from common cryptocurrencies? The answer is simple: state backing.

### The guaranteed value: What separates CBDCs from crypto

Unlike cryptocurrencies that fluctuate according to the market, a **CBDC is digital money issued directly by the central bank of each country**, with a fixed value equivalent to traditional fiat currency. In other words, a CBDC from a country has exactly the same value as the physical bill of that country. This is what makes them so interesting for governments and companies: the stability of traditional currency with the efficiency of digital.

### How does the CBDC work in practice?

There are two parallel paths. Wholesale **CBDCs** are the world of banks: financial institutions use them to manage liquidity and make interbank settlements among themselves. It's like having reserves at the central bank, but in a digital and more agile form.

Retail **CBDCs**, on the other hand, are for you and me. They are used by businesses and consumers for everyday transactions. And here are two flavors: **token-based** versions work almost like cash (anonymous), while **account-based** ones require identification, similar to a traditional bank transfer.

### The benefits that can change the game

Why are so many governments investing in developing CBDCs? The arguments are compelling. First, they dramatically reduce the costs of maintaining complex financial systems. Cross-border transactions, which are currently expensive and slow, would become economical and almost instantaneous.

Furthermore, CBDCs offer financial security that avoids intermediary risks. With a retail CBDC, you do not depend on a private bank not going bankrupt; your money is backed by the state. This is especially revolutionary for people without bank access, who could access financial services directly without the need for intermediaries.

### The greatest impact: eliminate systemic risks

CBDCs also address structural problems in the current financial system. The risk of bank runs is significantly reduced because the money is centrally backed. The hidden costs of a complicated financial infrastructure disappear. And for countries with less developed economies, they open the door to financial inclusion without the huge expenses involved in building traditional banking networks.

In summary: the CBDC is the response of central banks to the digital age. It will not replace cryptocurrencies, but it will revolutionize how traditional money works in the digital world, combining the best of both worlds: the trust of fiat money with the efficiency of digital transactions.