Bitcoin and CBDCs: competition or coexistence?

With the rapid development of central bank digital currencies (CBDCs), interest is growing in how they interact with existing decentralized cryptocurrencies, particularly Bitcoin. Are CBDCs and Bitcoin on a path to coexistence, or are they heading for a direct clash over control of digital finance?

What are CBDCs and how do they differ from Bitcoin?

CBDCs (Central Bank Digital Currencies) are a digital form of national currency created, issued, and controlled by a central bank.

Unlike Bitcoin, CBDCs are:

• Centralized: Fully controlled by the state. CBDCs are issued and managed solely by a country's central bank — every process, from the creation of digital currency units to the processing of transactions, happens under a state monopoly.
• Reversible: Transactions can be reversed. A key difference is the ability to reverse or cancel transactions based on decisions made by authorized bodies. This enables governments to combat fraud, correct transfer errors, and stop illegal activities. Funds can be frozen, returned to the sender, or confiscated by court order if necessary.
• Non-anonymous: High level of transaction traceability. CBDCs are designed with full auditability and identity tracking. While some countries are considering "limited privacy" for small transactions, in most cases, users must undergo Know Your Customer (KYC) procedures, and all transactions are logged in a centralized database.
• Unlimited supply: Governed by monetary policy. Like traditional money, CBDCs have no hard issuance cap. The amount in circulation is regulated by central banks based on current economic conditions — to stimulate growth, curb inflation, and so on.

Goals of CBDC implementation and government motivation

CBDCs are being developed in response to the increasing digitalization of finance and the growing popularity of cryptocurrencies. Key objectives of CBDCs include:

• Enhancing control over money circulation: CBDCs give governments and central banks an unprecedented level of transparency and control over money flows. Every transaction can be tracked in real-time, and money movements can be analyzed on both macro and micro levels. This helps governments better forecast economic activity, identify anomalies, control capital flows, and implement targeted regulatory measures — from tax policy to crisis management.
• Improving the efficiency of the payment system: CBDCs can significantly reduce transaction costs and accelerate settlements both domestically and potentially internationally. Payments using digital state currency can be processed instantly, eliminating intermediaries and banking delays.
• Combating the shadow economy: One of the primary objectives of CBDCs is to curb illicit cash flows. Cash is hard to trace and is widely used in grey and criminal schemes. In contrast, a transparent digital currency allows tracking of all funds, making such schemes less viable. This enhances tax administration, increases tax collection, and reduces overall corruption levels.
• Competing with private stablecoins and cryptocurrencies: The rise of stablecoins poses a threat to the monetary sovereignty of states. These assets are often used for cross-border payments, decentralized finance, and even retail transactions. In response, governments are developing their digital currencies, offering a "safe" state-backed alternative.

The impact of CBDCs on the perception and use of Bitcoin

Despite both being digital, CBDCs and BTC are fundamentally opposites. Their coexistence in the market could evolve according to three main scenarios.

Scenario 1: Competition

CBDCs could be used as a tool to push Bitcoin out of the legal economy. For instance, cryptocurrency transactions are officially banned in China, and the state is actively promoting e-CNY as the primary digital payment method.

Some countries are considering mandating the use of only state-run digital wallets, effectively excluding decentralized assets from circulation.

Scenario 2: Coexistence

In countries with more liberal financial policies, peaceful coexistence of CBDCs and Bitcoin is quite possible. In such economies, CBDCs can be used for everyday payments — offering speed, convenience, and integration with state infrastructure.

At the same time, Bitcoin remains relevant as a store of value and tool for international transfers, particularly due to its decentralized nature and limited supply.

Scenario 3: Symbiosis

Some initiatives explore integrating Bitcoin into CBDC infrastructure — not to compete with it, but to adapt it to a regulated environment. One approach is using BTC as collateral for digital derivatives or financial instruments within the official digital ecosystem.

Another option is to provide access to Bitcoin operations through government platforms, thereby maintaining public interest in the asset while introducing elements of control and regulatory compliance.

Risks for Bitcoin in the CBDC era

Amid the growing influence of CBDCs and tighter state control, Bitcoin faces systemic challenges that may impact its accessibility and functionality in the future:

• Tighter regulation (KYC/AML): Increasingly, countries are requiring complete user identification (KYC) and anti-money laundering (AML) compliance from cryptocurrency platforms. This undermines the core principles of cryptocurrency — financial autonomy and transaction privacy.
• Transaction censorship and bans on private wallets: Many jurisdictions impose restrictions on wallets that lack verification or support for anonymous transactions. This significantly limits user freedom and reduces Bitcoin's availability as a tool for escaping financial surveillance.
• Monopolization of digital liquidity: Governments pressure stablecoins and decentralized assets, including BTC, aiming to eliminate competition for their digital currencies. This is reflected in legislative initiatives and tax burdens.

Why Bitcoin won't disappear in a CBDC world

Even under growing pressure from state digital currencies, Bitcoin continues to fulfill critical functions beyond the reach of CBDCs:

• Store of value: Bitcoin acts as a hedge against inflation — especially in countries with devaluing national currencies and limited access to stable assets. It helps citizens preserve purchasing power without relying on central banks.
• Cross-border transfers without intermediaries: Thanks to its decentralized network, Bitcoin enables fast, low-cost international transfers without banks or payment systems, which is especially important for migrants and businesses in developing economies.
• Financial independence: In politically unstable or authoritarian regimes, Bitcoin provides individuals with access to money outside the state's jurisdiction. It's a crucial tool for survival and freedom for those whose accounts may be frozen or restricted.
• Limited supply: Unlike CBDCs, which can be printed in unlimited quantities, Bitcoin has a fixed cap of 21 million coins. This makes it akin to "digital gold" and protects it from devaluation.

In the coming years, we will witness a unique experiment: whether the world can function with two parallel forms of digital money or if one will displace the other. But if history teaches us anything, it's that the idea of decentralization cannot be banned. Which means — Bitcoin will remain.