Central Bank Digital Currencies (CBDCs) have been analyzed by several banking institutions around the world, specifically by several central banks in different countries. However, they are different than virtual currencies such as Bitcoin (BTC). How would the issuance of CBDCs affect Bitcoin and the whole crypto market?

There are some important differences between Bitcoin and CBDCs. For example, Bitcoin is permissionless, decentralized and censorship-resistant while CBDCs are permission, centralized and censorable. Thus, they are almost contrary to Bitcoin. While the most popular cryptocurrency provides freedom to users, CBDCs allow governments to have larger control over their populations.

A few days ago, the popular investment bank JP Morgan unveiled a stablecoin called JPM Coin that would be used to make transfers between customers in just a few seconds. Although JP Morgan’s CEO Jamie Dimon has been against virtual currencies, it seems that the bank will be using blockchain technology to power their virtual currency.

There were several individuals in the market claiming that the new JP Morgan digital coin killed Bitcoin, or at least, it is going to kill the most popular cryptocurrency in the market. However, it is important to understand that these coins will never be similar and work in a completely different way. CBDCs and stablecoins issued by financial institutions such as JP Morgan work in a centralized and controlled way.

Indeed, these new digital assets do not seem to present a threat to cryptocurrencies such as Bitcoin. SWIFT could be affected by these new coins. SWIFT is the mainstream and most popular system to perform cross-border payments. This system has proven to be slow and costly for many financial institutions and banks all over the world. Indeed, Ripple’s services could also be affected by the growth of new CBDCs.

CBDCs legitimize that virtual currencies are the future of money. Because of this, it might be possible for Bitcoin to distance itself from drugs and criminals. At the same time, with CBDCs individuals will discover that there are several advantages of using digital assets.

Individuals will clearly have their funds frozen at any moment using CBDCs if the financial institution regulating the asset decides so. Moreover, their accounts can be suspended and users would not be able to use these funds anymore.

There are some crypto experts that believe that CBDCs could be very harmful to societies. For example, China is currently trying to control its population with new surveillance systems related to how individuals use their funds.

Crypto fiat (i.e. government controlled permissioned cryptocurrencies) will be the biggest battleground globally for human rights over the next decade. China is leading the way, many other countries, including some big western democracies, will follow. https://t.co/8BqfmBJ2mP — Ari Paul (@AriDavidPaul) February 13, 2019

With CBDCs, people will realize that there is no more freedom and that the government is ultimately controlling everything. This is why Bitcoin could grow as a safe haven where users can feel free to use their funds as they want without being controlled by governments.

That does not mean that Bitcoin will be used to perform illegal things. It means that users will protect their privacy and what they do with their funds.