A central bank digital currency (CBDC) is a digital version of fiat money issued and backed by a country's central bank. CBDCs can be used for digital transactions, just like physical currency, and can be exchanged for cash. 

The primary difference between CBDCs and traditional digital payments is that CBDCs are backed by a central authority, while traditional digital payments rely on a decentralized system of trust between the parties involved. Some central banks are currently exploring the possibility of issuing CBDCs, but there are not widely-used CBDCs in circulation yet.  

Goals of Central Bank Digital Currency (CBDCs)

Some potential goals of a CBDC include:

1. Enhancing financial inclusion by providing a digital payment option for individuals and businesses that do not have access to traditional banking services.

2. Improving the efficiency of the payment system by reducing the costs and risks associated with cash transactions and intermediaries.

3. Enhancing monetary policy by providing the central bank with new tools for controlling the money supply and managing inflation.

4. Reducing the risks associated with a shift towards a cashless society, such as the loss of control over the monetary system and the erosion of privacy.

5. Providing a hedge against the potential disruption of the global financial system by digital currencies such as Bitcoin and Libra.

6. Enabling the central bank to better track and control the economy by providing real-time data on transactions.

Types of CBDCs

There are many types but the two main types of central bank digital currencies (CBDCs): wholesale CBDCs and retail CBDCs.

1. Wholesale CBDC: These types of CBDCs are intended for use among financial institutions and not for general public use. They are used for large-value interbank transactions, such as securities settlements. It is restricted to authorized participants, like banks and other financial institutions.

2. Retail CBDC: These types of CBDCs are intended for use by the general public for everyday transactions, similar to physical cash. They can be used for small-value transactions, such as buying groceries or paying bills.

3. Anonymous CBDCs: These types of CBDCs do not require users to identify themselves when making transactions. Transactions are recorded on a public ledger, but the identities of the parties involved are not revealed. This type of CBDC is similar to physical cash and allows for a high degree of privacy.

4. Non-anonymous CBDCs: These types of CBDCs require users to identify themselves when making transactions. Transactions are recorded on a public ledger, and the identities of the parties involved are revealed. This allows for greater transparency and traceability.

5. Account-based CBDCs: This type of CBDC is linked to a user's account at the central bank. Users can deposit and withdraw funds, and transactions are recorded on a ledger maintained by the central bank.

6. Token-based CBDCs: This type of CBDC is issued in the form of digital tokens. Users can transfer tokens to other users, and transactions are recorded on a public ledger. Tokens can be exchanged for cash at authorized locations, such as banks.

Pros and Cons of CBDCs

Pros of CBDCs

1. Increased financial inclusion: CBDCs can provide a digital payment option for individuals and businesses that do not have access to traditional banking services, thus enabling them to participate in the digital economy.

2. Improved efficiency of the payment system: CBDCs can reduce the costs and risks associated with cash transactions and intermediaries, thus making the payment system more efficient.

3. Enhanced monetary policy: CBDCs can provide central banks with new tools for controlling the money supply and managing inflation, thus enabling them to better achieve their monetary policy objectives.

4. Reduced risks associated with a cashless society: CBDCs can provide a hedge against the potential disruption of the global financial system by digital currencies such as Bitcoin and Libra, and mitigate the risks of the loss of control over the monetary system and the erosion of privacy.

5. Real-time data on transactions: CBDCs can enable the central bank to better track and control the economy by providing real-time data on transactions.

Cons of CBDCs

1. Technological challenges: Implementing a CBDC can be technically complex and requires a high level of security to prevent fraud and hacking.

2. Privacy concerns: CBDCs may raise privacy concerns, as they can enable the central bank to track the financial transactions of individuals and businesses.

3. Risk of disintermediation: CBDCs could displace traditional banking intermediaries, which could have negative effects on the stability of the financial system.

4. Risk of creating a parallel economy: CBDCs could be used for illegal activities, such as money laundering, tax evasion, and terrorist financing.

5. Risk of losing control of monetary policy: CBDCs could lead to a situation where central banks lose control of monetary policy if the public moves away from using commercial bank deposits and instead uses CBDCs.

6. High cost of implementation: Implementing a CBDC can be expensive and require significant resources.  

CBDCs VS Cryptocurrency

Central bank digital currencies (CBDCs) and cryptocurrencies, such as Bitcoin, have some similarities but also significant differences.

The Similarities are that both CBDCs and cryptocurrencies are digital forms of money that can be used for transactions and also both can be stored and transferred electronically.

Differences:

1. Backing: CBDCs are issued and backed by a country's central bank, while cryptocurrencies are decentralized and not backed by any government or central authority.

2. Regulation: CBDCs are subject to government regulation and oversight, while cryptocurrencies are largely unregulated.

3. Anonymity: Some CBDCs are non-anonymous, while most cryptocurrencies offer a high degree of anonymity.

4. Volatility: CBDCs are expected to be relatively stable in value, while the value of cryptocurrencies can be highly volatile.

5. Purpose: CBDCs are primarily intended for use in the domestic economy, while cryptocurrencies are global and borderless.

6. Acceptance: CBDCs will likely be widely accepted by merchants and businesses within a country, while the acceptance of cryptocurrencies varies widely and is still limited in many places.

7. Security: CBDCs will likely have a high level of security due to the oversight and regulation, while the security of cryptocurrencies can be more vulnerable to hacking and fraud.

An Overview of the Nigerian CBDCs

The Nigerian eNaira was launched on October, 2021 with the aim to increase remittances, foster cross-border trade, improve financial inclusion and enable the government to make payment easier as stated by President Mohammed Buhari. 

Never the less, a report from Coin Market Cap late last year, stated that a geopolitical Analyst named ‘Nick Giambruno’ has termed the Nigerian Central Bank Digital Currency (CBDC) 

adoption as a fatal failure as against what the Nigerian elites anticipated. 

The report further opined that though the Central Bank of Nigeria (CBN) Governor has termed the eNaira a success but according to Bloomberg, less than 0.5% of the Nigerian 21M population are using the eNaira digital wallet. The reporter added that eNaira is nothing but a tool for the citizen’s enslavement.

Conclusion: CBDC is a digital currency but then it’s being issued, censored or under the control of the Central Bank of a given country, but it has privacy concerns and risks of losing control of monetary policy among others. Its contrast with the traditional digital currency is that the later is purely decentralized, trust-less and permission-less and so it’s not being controlled by any central authority, institution or an economy though at the moment it lacks adequate regulation.