Central Bank Digital Currencies (CBDCs) promise efficiency and security, backed by the credibility of national institutions. Yet, these digital currencies raise significant concerns about privacy, freedom, and financial stability.
Meanwhile, stablecoins, privately issued cryptocurrencies pegged to fiat currencies, have rapidly emerged as viable alternatives, addressing many of the issues that CBDCs seek to solve.
In this second part of our series, we’ll examine the controversies surrounding CBDCs, including privacy concerns, potential misuse by governments, cybersecurity risks, and their impact on financial systems. We’ll also explore how stablecoins already function effectively as digital currency alternatives.
Before continuing, you may wish to read the first part of this series, which covers the basics of CBDCs and stablecoins, also highlight their similarities and differences.
If you are already familiar with these concepts, let’s dive in.
Why Are CBDCs Controversial? Concerns and Dangers
CBDCs may promise speed, security, and financial inclusion, but they’re far from universally welcomed.
As governments explore rolling out central bank digital currencies, a range of concerns have surfaced from industry experts, privacy advocates, and the general public alike.
These concerns go beyond technical challenges—they touch on fundamental issues like surveillance, control over personal finances, and the stability of the broader financial system.
Below, we break down the key reasons why CBDCs are seen by many as both an opportunity and a potential threat.
Surveillance and Privacy
Perhaps the biggest worry is that a CBDC could enable unprecedented government surveillance of financial activity. If every digital dollar or euro is recorded on a ledger accessible by the central bank, authorities could theoretically trace all transactions by any individual.
This is a stark contrast to the anonymity of cash. Privacy advocates fear that without strong safeguards, a CBDC would “establish a direct line between each citizen’s financial activity and the central bank,” eliminating the few remaining privacy protections in our financial lives.
An American survey in 2023 found that 68% of U.S. adults would oppose a CBDC if it meant the government could monitor their spending – a clear sign that this issue is top of mind.
Central banks are aware of this concern: for example, the Bank of England has stated that “the bank and the government would not have access to any personal data” if a digital pound is issued, and that privacy would be “paramount” in the design.
Technical solutions like anonymized wallets or tiered privacy for small transactions are being considered. Nonetheless, skepticism remains, since trusting a CBDC also means trusting that future governments won’t abuse the data trail it creates.
Government Control and Potential Misuse
Beyond passive surveillance, critics worry about active control – the idea that a government could directly enforce rules on how money is spent.
A CBDC could be made “programmable” to restrict certain purchases or even deactivate currency held by particular users. While most central banks say they have no intention of doing this, technology could make it possible.
For instance, a CBDC might technically allow authorities to freeze or seize funds more easily than through the banking system. There is also concern about policies like negative interest rates or expiration dates on money (to force spending in a recession) being implemented via CBDC.
The aforementioned survey also revealed that 74% of Americans would oppose a CBDC that gave the government control over how they spend their money, underscoring the public’s fear of an “all-powerful” programmable dollar.
These concerns are not just hypothetical – China’s design of its e-CNY has stirred debate, as it could be intertwined with the state’s social credit system and fine-grained control, something democratic societies are keen to avoid.
Cybersecurity and Technical Risks
If a country moves a large share of its transactions onto a CBDC system, that infrastructure becomes critical national payment plumbing. Any technical failure or cyber attack on the CBDC network could be catastrophic, potentially freezing commerce.
Central banks are very mindful of needing military-grade security and redundancy. However, recent high-profile hacks in both government and crypto systems make people nervous about a single point of failure.
A CBDC ledger hack or outage is in some ways scarier than a bank cyber incident, because it could affect everyone simultaneously. The operational complexity of launching a resilient CBDC at national scale is non-trivial.
Financial System Impact (Bank Disintermediation)
If people can hold digital cash directly with a central bank, will they still need bank accounts?
Commercial banks today rely on deposits, which they turn into loans for the economy. A big risk flagged by economists is that in times of crisis, citizens might rush to convert bank deposits into CBDC (perceived as safer central bank money), causing bank runs.
Even outside of crises, if too much money migrates to CBDC, banks lose funding, which could shrink their lending or force them to raise interest rates. The UK Parliament’s Treasury Committee noted this as a major risk, calling uncontrolled retail CBDC adoption a possible trigger for “bank disintermediation” and financial instability.
Central banks are exploring mitigations, like capping how much CBDC an individual can hold (to prevent sudden large outflows from banks). But this balancing act adds complexity to any CBDC rollout.
“Solution in Search of a Problem”
Some skeptics simply question whether the benefits of a CBDC are compelling enough, given the risks and the fact that digital payment options already exist.
A report by UK lawmakers pointedly titled “The digital pound: still a solution in search of a problem?” argued that many supposed benefits of a CBDC (like faster payments or financial inclusion) might be achievable through other improvements in the banking system or with regulated private digital currencies.
If the public is unconvinced of clear value, they may not adopt a CBDC readily. Indeed, public sentiment in several countries appears lukewarm – outside of early adopters like China, many citizens and businesses are either unaware of CBDC plans or express hesitation when polled.
In the U.S., only 16% of adults said they favor the idea of a government-issued CBDC in principle (even before getting to the specific concerns above). The cautious rollout schedules and consultation phases (for example, the ECB engaging in multi-year research and public dialogue) reflect the need to justify a CBDC’s purpose and design it to actually solve real problems.
While CBDCs hold promise from a policy perspective, they also come with significant societal and technical challenges.
Privacy and freedom concerns are at the forefront of the public debate. No democratic nation wants to introduce a system that the public perceives as Orwellian or destabilizing. This is one reason why central banks are moving carefully, running pilots and seeking input.
For instance, the European Central Bank (ECB) asserts that a digital euro will offer “high privacy” and that it will not replace cash but complement it, attempting to allay fears. Similarly, the UK Treasury has emphasized any digital pound would coexist with cash and require legislation guaranteeing privacy. These assurances indicate that governments know public acceptance is the linchpin – a CBDC that people distrust will fail to gain traction.
Next, let’s shift perspective and look at stablecoins: how are they already providing some of the capabilities that CBDCs promise, and why have they gained significant adoption without being shut down by regulators?
Stablecoins: The Existing Alternative to CBDCs
While central banks deliberate on CBDCs, stablecoins are here now – widely used in the crypto economy and increasingly in mainstream business.
In many ways, stablecoins already fulfill several functions that CBDCs are aiming for, using technology and infrastructure that’s operational today. Let’s explore how stablecoins stack up as an alternative:
Proven Use in Fast, Global Payments
Stablecoins can move across borders in seconds, anytime. Need to send money overseas on a Sunday at midnight? With a stablecoin like USDC, you can. This is one of the touted benefits of a CBDC (fast cross-border transfers), but stablecoins have been providing it for years on public networks.
The speed and low cost are especially apparent in crypto-to-crypto payments – for example, someone can pay a freelancer on the other side of the world in USDC or USDT almost instantly, or a business can settle an invoice in stablecoins without waiting days for an international wire.
The infrastructure (wallets, exchanges, payment processors) to use stablecoins is well-established. A variety of crypto wallets support stablecoins, and major exchanges and payment gateways facilitate converting stablecoins to local currency when needed. This means merchants and users can adopt stablecoin payments relatively easily.
CoinGate, for instance, enables businesses to accept popular stablecoins (like USDT, USDC, and others) as payment, with the option to instantly settle in fiat to avoid volatility.
The pipes are already laid: you can think of stablecoins as piggybacking on the existing internet of value that cryptocurrency created, rather than needing a whole new system from a central bank.
Got curious? Learn more about how businesses can utilize USDC or dive into our complete guide to USDC first.
Real-World Adoption and Volume
By several measures, stablecoins have achieved remarkable adoption. They are no longer a niche tool.
In fact, 2024 was a breakout year for stablecoins in payments and transfers. Our internal data shows that stablecoins accounted for 35.5% of all transactions processed on CoinGate in 2024, more than one-third of total payment volume.
Tether (USDT) led the way – among stablecoin transactions on CoinGate, USDT dominated with about 97.2% of stablecoin payments, with smaller shares for USD Coin (USDC at 2.5%) and DAI (0.3%). This represents a massive rise compared to just a couple of years prior – in 2022, stablecoins were only 16% of CoinGate payments, and 25% in 2023, meaning stablecoins’ share more than doubled in two years.
In fact, USDT became the single most popular cryptocurrency for payments on CoinGate in 2024, overtaking even Bitcoin in transaction count. This trend underscores that users increasingly prefer transacting in a currency that doesn’t fluctuate like Bitcoin, especially for commerce.
However, because USDT is not compliant with the recently implemented MiCA regulations, payment providers had to delist or limit USDT services in Europe. But that’s not the case with USDC.
In fact, USDC was the first stablecoin to achieve MiCA compliance. Thus, we expect that USDC will become much more prevalent in the industry moving forward, particularly in the EU.
But what we should focus on is that stablecoin adoption has surged in recent years. For example, at CoinGate the number of crypto payments hit a record in 2024 (over 1.67 million total), and an ever-larger slice of this pie is composed of stablecoin payments. The chart above shows the growth of crypto payment count over 2016–2024, reflecting the increasing role of digital assets in commerce.
Stablecoins in the Wider Crypto Market
Beyond merchant payments, stablecoins are the lifeblood of crypto trading and decentralized finance. They lubricate exchanges as a stable medium of exchange.
The result is staggering transaction volumes. On-chain data indicates that in 2024, the total transfer volume of stablecoins reached $27.6 trillion, surpassing even the combined volume of Visa and Mastercard payments for that year, according to Cointelegraph.
This comparison, while not apples-to-apples (stablecoin volume is driven by exchange and DeFi usage in large part, including automated trading), shows the sheer scale stablecoins have achieved. They are a foundational layer in crypto markets, and increasingly, they are bridging into traditional uses like remittances and savings in emerging markets.
The ability for regular users to hold digital dollars without a bank has proven valuable in places with economic instability. For example, in Argentina and Turkey, some individuals convert part of their salary to USDT or USDC to hedge against local currency inflation – effectively using stablecoins as a dollar savings account alternative.
Existing Merchant Ecosystem
A CBDC would likely require building new merchant acceptance networks (or integrating into existing card/payment networks). Stablecoins, however, have organically penetrated merchant ecosystems through crypto payment providers. Thousands of merchants today accept payments in stablecoins via services like CoinGate, BitPay, Coinbase Commerce, and others.
These services often allow a business to accept a stablecoin and automatically convert it to fiat, depositing the equivalent in their bank account. This solves one major barrier – merchants don’t have to deal with holding crypto if they don’t want to.
From the shopper’s perspective, paying with a stablecoin is as simple as scanning a QR code or copying an address, similar to any crypto payment. The result is that current stablecoin infrastructure already delivers many of the benefits that a future retail CBDC promises: digital payments that are global, fast, and secure, with the added benefit of being available right now.
Want to implement stablecoins in your line of work? It’s really not that difficult – take the first step and sign up for a CoinGate account.
Financial Inclusion via Crypto Rails
While CBDCs often cite financial inclusion, stablecoins plus smartphones are already achieving inclusion in some contexts.
Consider someone in a country with strict banking requirements or high remittance fees – getting a CBDC might require waiting for their central bank to launch one (and possibly still needing an ID and compliance to access it). But getting a stablecoin can be as easy as finding a local peer or exchange and downloading a free wallet app.
This bottom-up adoption has meant stablecoins spread wherever they addressed a need (often without government initiative). One could argue that the crypto ecosystem’s innovation moved faster than regulators – by the time CBDCs launched, the market may already have settled on private stablecoins as the go-to digital dollars or digital euros.
Of course, stablecoins are not perfect. They depend on the stability and honesty of their issuers (there have been questions in the past about Tether’s reserves, for instance). And users still face some friction converting stablecoins to local cash in many places (unless services like CoinGate are used by vendors). But the critical point is that the infrastructure and user base exist today, and are growing, for stablecoins as a medium of exchange.
Are We Ready to Answer Which Will Prevail?
CBDCs and stablecoins present distinct visions for the future of digital money. CBDCs, despite their governmental backing, face significant challenges related to privacy, government control, cybersecurity, and financial stability. Meanwhile, stablecoins are rapidly gaining traction, effectively addressing many of these challenges with existing, proven solutions.
As we delve deeper, key questions still remain: How will regulators respond to the growing influence of stablecoins? Could stablecoins face future regulatory restrictions? What are governments’ concrete plans regarding CBDCs, and how might public sentiment shape their adoption?Stay tuned for part three of our series, where we’ll explore these questions and potential future scenarios in greater detail. Be sure to follow us on X or LinkedIn to catch the next article as soon as it’s published.
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