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The system design and challenges of retail Central Bank Digital Currencies (CBDCs) differ significantly from Bitcoin in several key aspects, reflecting their distinct purposes and underlying philosophies: 1. Core Purpose and Issuance • CBDCs: Issued by central banks, CBDCs are designed as state-backed digital currencies for public use. Their goal is to modernize payments, enhance financial inclusion, and provide a risk-free alternative to private money. • Bitcoin: A decentralized, peer-to-peer cryptocurrency created to operate independently of central authorities. Bitcoin aims to be a store of value and medium of exchange without reliance on intermediaries or governments. 2. Governance and Control • CBDCs: Operate under centralized governance. Central banks retain control over issuance, transaction validation, and data management, allowing for integration with existing regulatory frameworks (e.g., AML and CFT). • Bitcoin: Fully decentralized, governed by a consensus mechanism (Proof of Work). Transactions are validated by miners, and no single entity controls the network. 3. Privacy • CBDCs: Seek to balance privacy with regulatory compliance. Privacy-enhancing technologies may be implemented, but user data is typically accessible to intermediaries and central banks to meet regulatory needs. • Bitcoin: Pseudonymous by design. Transactions are public on the blockchain but do not directly link to individual identities unless voluntarily disclosed. 4. System Design • CBDCs: May adopt a hybrid system combining centralized (e.g., central bank-controlled settlement) and decentralized elements (e.g., private-sector intermediaries). Offline functionality and interoperability with existing systems are priorities. • Bitcoin: Fully decentralized, using a distributed ledger (blockchain) where all transactions are validated and recorded without reliance on intermediaries. 5. Cybersecurity • CBDCs: Cybersecurity risks are heightened due to potential reliance on centralized points for data storage and validation. Post-quantum cryptography is a concern for future-proofing against quantum computing threats. • Bitcoin: Security relies on cryptographic algorithms and decentralization. However, it is also vulnerable to quantum computing in the long term, unless upgraded to quantum-resistant protocols. 6. Offline Functionality • CBDCs: Exploring offline payment capabilities for broader usability in remote or unconnected areas. • Bitcoin: Offline payments are not natively supported, although some solutions (e.g., Lightning Network or third-party hardware wallets) can enable limited offline functionality. 7. Point of Sale and Adoption • CBDCs: Designed for seamless integration with existing PoS systems and modern financial infrastructure to encourage widespread adoption. • Bitcoin: Adoption depends on merchant willingness and the availability of cryptocurrency payment gateways. Its volatility can discourage usage as a medium of exchange. 8. Monetary Policy and Design • CBDCs: Can be programmed to support specific policy goals, such as negative interest rates, transaction limits, or conditional transfers. • Bitcoin: Supply is fixed at 21 million coins, governed by its code. It is resistant to monetary policy interventions and inflationary adjustments. In summary, while CBDCs aim to complement existing monetary systems with centralized oversight and tailored features, Bitcoin is designed as a decentralized alternative to traditional currency. CBDCs prioritize integration, control, and regulatory compliance, whereas Bitcoin emphasizes autonomy, censorship resistance, and a trustless system.