CBDC and Anonymity

The CBDC digital currency could spark an increased interest in confidential coins.

Governments developing CBDCs could be a hot trend in 2021. As the use of digital currency will increase the ability to fight corruption and money laundering. CBDC is a fully state-controlled cryptocurrency, which will make it easier for regulators to control the movement of funds, as well as the ability to track individuals engaged in illegal activities.

The increase in the number of Governments willing to implement CBDC can be attributed to one of the main factors behind the sharp rise in the value of Bitcoin over the past year. A number of Governments around the world still view cryptocurrencies such as Bitcoin as a tool to facilitate illegal activities. Thus, the implementation of CBDC will help Governments fight illegal activities using cryptocurrencies.

Last year, the demand for cashless transactions grew at an unprecedented rate. The coronavirus pandemic has veiled a lack of cash, but has prompted Governments and their central banks to develop CBDCs to move from fiat to digital.

While the CBDC has a major role to play in the fight against money laundering and other financial crimes, citizens have expressed concern about the development of central bank digital currencies. CBDC will allow the Government to control users and their financial activities. Many people believe that the Government will use this power to increase financial discrimination. Others fear that anonymity and freedom will be threatened with the development of CBDC.

The Government could introduce stricter Know Your Customer (KYC) requirements for transfers, which could make more user data dependent on financial and technological structures. Let's say tech giants like Apple and Google start paying for individuals. In this case, it will be easier for hackers to collect user data, since electronic transaction history can be obtained from such platforms.

CBDC May Promote the Popularity of Private Coins

The rise of CBDC can contribute to the popularity of privacy coins. For people who want to remain anonymous during financial transactions, confidential coins are the best alternative. In light of this, some countries such as South Korea, Russia and the United States are stepping up efforts to restrict the use of confidential coins. Regulators in these countries restrict cryptocurrency exchanges by forcing the removal of privacy coins from their platforms, making it difficult for people to access privacy-focused cryptocurrencies.

It is believed that confidential coins are mainly used to facilitate illegal transactions. However, confidential coins like Monero can provide many benefits, such as private transactions and financial data security.