CBDC

What Is Central Bank Digital Currency (CBDC)?

A Central Bank Digital Currency (CBDC) is a digital version of cash issued directly by a central bank, backed by the full faith and credit of the government. CBDCs serve as legal tender for everyday payments and settlements, just like physical banknotes and coins. The key difference lies in their digital format, circulating within official wallets or banking systems.

“Legal tender” refers to currency recognized by law and issued by the state, accepted for taxes, payroll, and public services. CBDCs maintain national creditworthiness while leveraging digital technology to enhance payment efficiency and regulatory transparency.

How Does CBDC Differ From Cryptocurrency?

CBDCs are issued and regulated by central banks under national law, whereas cryptocurrencies are typically created by communities or companies on open networks, independent of government backing. The two differ significantly in terms of issuing authority, price stability, and compliance requirements.

Cryptocurrency prices fluctuate with the market and are commonly used for investment and decentralized applications (DApps). CBDCs aim for stable, inclusive payments, usually pegged 1:1 to the national currency. For example, China's e-CNY pilot is designed for retail payments, not speculative trading.

In practice, stablecoins like USDT available on Gate are tokens issued by companies and backed by reserve assets—not CBDCs. Only central banks can issue CBDCs.

How Do CBDCs Work?

CBDC operations revolve around three elements: wallets, ledgers, and identity. Individuals or institutions hold wallets provided by the central bank or authorized entities; transactions are recorded on ledgers controlled by the central bank and validated according to identity compliance rules.

A “distributed ledger” means a general ledger maintained collectively by trusted nodes. Some CBDCs use permissioned blockchain, where only approved participants can join; others opt for centralized databases for higher throughput and simplified governance. Both approaches aim for reliable record-keeping and real-time settlement.

Wholesale CBDCs are designed for interbank clearing and cross-border settlements, focusing on high performance and programmable rules. Retail CBDCs target public payments, prioritizing usability, offline functionality, and password-free microtransactions. Offline payments typically use secure chips or near-field communication to sync balances between devices, then update the ledger once reconnected.

What Are the Use Cases for CBDC?

CBDCs can be used for daily micro-payments, public service fees, payroll distribution, and direct subsidies—reducing intermediaries and improving certainty of fund arrival and regulatory efficiency.

For cross-border scenarios, wholesale CBDCs can connect central banking systems of different countries to enable faster FX settlement and regulatory information sharing. Multi-CBDC bridge initiatives aim to reduce time zone delays and transaction costs.

On the exchange front, if a country launches a retail CBDC with merchant access, platforms like Gate could integrate local CBDCs as payment methods for fiat deposits or withdrawals—boosting speed and compliance transparency. This depends on local regulations and technical integration policies.

How Do You Start Using CBDC?

Step 1: Check if your country has issued or piloted a CBDC. Central banks or local banks typically provide official information and download links.

Step 2: Download the official wallet app or an authorized bank wallet, or set up a hardware wallet (such as a card or device with a secure chip). Make sure it is from a trusted source.

Step 3: Complete identity verification. This anti-money laundering and anti-fraud step may require ID documents, facial recognition, or phone number binding.

Step 4: Acquire CBDC. You may top up via bank card, receive salary payments, government subsidies, or exchange at designated bank branches.

Step 5: Use for payments and transfers—scan merchant codes, send peer-to-peer transfers, or pay public service fees. Enable offline mode if supported.

Step 6: Pay attention to security and privacy. Set device locks and transaction limits, beware of fake apps and social engineering scams, and understand your country's rules on transaction records and queries.

What Is the Relationship Between CBDC and Stablecoins?

CBDCs and stablecoins both seek value stability but differ in issuance and backing: CBDCs are issued by central banks with state backing; stablecoins are issued by companies or institutions and backed by reserves such as bank deposits or government bonds.

They can cooperate: With regulatory approval, stablecoin issuers could use CBDC as settlement funds to improve clearing efficiency; or convert stablecoins into local CBDC for merchant payments via compliant gateways—subject to legal frameworks and technical connectivity.

On Gate, stablecoin trading reflects market activity—prices hover around 1:1 but can be influenced by issuance and reserve management. CBDCs are not exchange-listed assets and are not intended for speculation.

What Are the Risks and Privacy Considerations of Using CBDC?

CBDC usage involves balancing compliance and privacy: To combat money laundering and fraud, transactions may be traceable; different countries design trade-offs between “traceability” and “limited anonymity.”

Fund and operational risks include: account or wallet theft, device loss, counterfeit apps, offline balance mismanagement, and downtime during system maintenance. Always use official channels, enable multi-factor protection, and familiarize yourself with dispute resolution and recovery procedures.

Policy and programmable risks: Programmable payments allow rules to be embedded (such as limits or time windows), increasing efficiency but requiring clear boundaries and transparency. Cross-border use may involve foreign exchange controls and sanctions compliance.

Note: CBDCs are not investment products—they generally do not generate returns. For fund safety, diversify storage, keep devices/apps updated, and comply with local laws.

What Is the Global Status of CBDC Development?

As of October 2024, most economies are in research, pilot, or limited rollout phases. China’s e-CNY is undergoing multi-city pilots; Bahamas’ Sand Dollar and Jamaica’s JAM-DEX are publicly available; Nigeria’s eNaira and Eastern Caribbean DCash are being refined; India and Brazil are advancing retail or wholesale pilots; Hong Kong and UAE are participating in multi-CBDC cross-border projects.

Sources: Atlantic Council’s CBDC Tracker and project reports from the Bank for International Settlements (BIS) (as of October 2024). Policies and technical approaches vary widely; data is updated as new projects launch or versions iterate.

How Does CBDC Affect Web3?

CBDCs could reshape Web3’s fiat onboarding/offboarding pathways: If merchants and platforms gain access, transferring funds between fiat accounts and digital wallets becomes faster and more compliant—streamlining entry into regulated digital asset ecosystems.

At the programmable layer, CBDCs provide public infrastructure for “writing payment rules into systems,” supporting direct government subsidies, automated tax payments, and supply chain settlement. However, most CBDCs use permissioned architectures that limit openness and composability compared to public blockchains.

For cross-border activity, multi-CBDC bridges can lower remittance costs and delays—delivering higher settlement certainty for compliant on-chain applications, fostering synergy between Web3 and traditional finance.

Summary: What Are the Key Points About CBDC?

CBDC is a digital fiat currency issued by central banks for efficient, compliant, programmable payments between individuals or institutions. It differs from cryptocurrencies and stablecoins in terms of issuer authority and legal status; technologically it may use centralized systems or permissioned blockchains. Applications span retail micro-payments, fiscal distributions, and cross-border settlements. Global deployment is accelerating but issues of openness, privacy, and policy boundaries remain under exploration. For users and Web3 participants alike, understanding local rules, choosing official channels, and practicing robust security are prerequisites for engaging in the CBDC ecosystem.

FAQ

Will CBDCs Replace Existing Cryptocurrencies?

CBDCs and cryptocurrencies serve different purposes—one will not directly replace the other. CBDCs are government-issued digital currencies with state backing and stable value; cryptocurrencies are decentralized with high price volatility. Both may coexist long-term: CBDCs fit daily payments while cryptocurrencies cater to investment and innovation.

Can Individuals Directly Buy or Hold CBDC?

This depends on each country’s central bank policy design. Some pilot regions allow individuals to hold CBDC through banks or designated wallets (e.g., China’s digital yuan or eurozone digital euro pilots); others restrict access to institutions only. Check your national central bank’s announcements to stay informed about CBDC availability.

What Is the Essential Difference Between CBDC And Electronic Payments (e.g., WeChat Pay, Alipay)?

Electronic payment systems digitize traditional money held by commercial banks; CBDCs are digital fiat issued directly by central banks—no intermediary required. CBDCs offer greater security (no bank failure risk), more convenience (offline transactions possible), and give central banks direct control over monetary policy implementation.

Will CBDC Impact My Privacy And Fund Security?

Privacy impact varies by design. Most CBDCs require KYC verification; central banks may track large transactions to prevent money laundering but can design small transactions to be anonymous. In terms of security, CBDCs have central bank guarantees—risk is much lower than commercial platforms. Review your country’s specific privacy policies on CBDC.

How Can I Track The Latest Progress Of CBDC Projects On Gate?

Gate provides market data and news updates on currencies related to CBDC projects. Visit Gate’s research pages or token detail pages to view progress in pilot countries, policy developments, and related token performance. Subscribe to Gate’s official news channels for global updates on CBDC development.