How are CBDCs different from stablecoins?

When talking about cryptocurrencies, the most normal thing is that Bitcoin, Ethereum or Cardano come to mind, as they are some of the best known currencies. However, there are many tokens and not all of them have the same nature.

Stablecoins are cryptocurrencies tied to a fiat currency, while CBDCs are actual fiat currencies, albeit built on top of a blockchain.

For example, we can find stablecoins, stable currencies in Spanish, which are currencies linked to a fiat currency, such as the euro or the dollar, as well as central bank digital currencies (CBDC)which would be a digital version of a currency like the dollar or the yuan.

The Central Bank of England, for example, defines CBDCs as electronic money issued and controlled by a central bank, which allows the registration of transactions through a system of centralized databases. An example of this would be the Digital Yuan that China has launched, to compete against cryptocurrencies.

A CBDC is one like the traditional fiat money, since it is issued by a central entity, although it is true that it is issued on a blockchain. This entity has the possibility of programming the money and it must meet certain requirements and particularities. Unlike cryptocurrencies, which are decentralized, CBDCs record any transactions, as well as the identities of the people who have moved the money.

For their part, stablecoins like Tether (USDT) or DAI remain highly decentralized, even if they have a Foundation like Tether behind them that supports them. Like CBDCs, stablecoins are also not the best option for anonymous transactions, as they are often used on centralized exchanges, thus complying with AML (anti-money laundering) and KYC (Know Your Customer) regulations. customer identity verification).

Both share emission limitations, although in the case of stablecoins, it can be openly issued. This means that new coins can be minted if the developers deem it necessary. For its part, new CBDCs can be minted if the Central Bank that supports them deems it necessary.

Another difference is that stable coins are issued by private companies, while CBDCs can only be issued by Central Banks, linked to national governments.

Both stablecoins and central bank coins work on a chain of blocks. However, while stablecoins take advantage of existing blockchains, such as Tether or DAI, CBDCs have their own infrastructure, highly centralized, and under the direct control of the Central Bank.

Finally, a key difference between stablecoins and CBDCs is that while stablecoins are tradable and backed 1:1 by fiat currency, stablecoins CBDC are fiat money themselves, so they do not need to be backed by physical money.