How CBDC Protect Investor from Fraudulence

by Fauzan Anandika

Cryptocurrency as an investment portfolio

After the global financial crisis in 2008, a financial firm and its client start to realize how important it is to diversify the client portfolio in allocating assets. This phenomenon makes portfolio managers actively adding alternative investments to their client asset model, and cryptocurrency become the newest alternative investment on the spot. 

Investing in cryptocurrency, an investor can enter this market in the same method as buying stock. For the first step, opening an account and make a digital wallet is required for further transaction. When all set, an investor can start trading using an app. Having a crypto wallet also enable a trader to send and receive crypto money from another account.

Although becoming one of the unstable assets, cryptocurrency has become a glistening asset to keep. Its rising price and ease of entering the market, for example, attract new investors entering the market. There were several ways to investing in cryptocurrency. An investor could buy cryptocurrency independently or buy it from a trusted crypto investment platform. 

The Risk

Instead of all the benefits, cryptocurrency trade and investment still have worrying risks that need to reck. This risk can make an investor lose part or whole of their crypto asset. Using blockchain to create cryptocurrency makes every transaction cannot be regenerate and edited. It will be impossible to fix any mistake that happens during the transaction. Well, several risks may happen during cryptocurrency transactions. 

Cryptocurrency creates a democratic system in the financial world where anyone can create their currency. After Bitcoin become a new hype, there are more than 7.000 cryptocurrencies created now. These wide entrance doors create a narrow exit as the side effect. The exit door can be blocking cause of the technological issue, lack of asset convertibility and every trader need counterparties to exchange their crypto into fiat. All those factors create a barrier to liquify crypto assets.  

Unlike fiat currency, where we can hold it in our hand, cryptocurrency doesn’t have any physical form. All you have is a code containing information of how much money you have, and when the code is gone, there isn’t any way to bring it back. That code can be lost because of anything. Software failure, your device malfunction, or even you spill your coffee to the laptop can make a great loss in the crypto asset.  

Cryptocurrency’s intangible and illiquid character makes insurance companies doubt to insure the crypto asset. There is no basic insurance framework for this asset class that helps broaden the appeal and investor security. Even some insurance companies try to approach ensuring cryptocurrency assets, but it’s still on the table to discuss. Investors in any condition cannot part away with their money, and most of them are un prepare to lose no matter how small the money. 

Another thing to cautious, cryptocurrency is vulnerable to social engineering and misinformation. Without having a physical form and its invisible character, each cryptocurrency has a different security standard to protect the investor. A ransomware attack or mysterious disappearance of the digital asset could happen anytime. In some cases, the transaction unable to trace because of technology constraints.   

Become an alternative currency out of national jurisdiction make cryptocurrency becomes assets that lack coordination and clarity of regulation, tax, financial, and law treatment. Without legal clarity, the investor can’t treat this digital asset as a safe-haven. 

Central Bank Move

To gain benefit from cryptocurrency investment trends while keep maintaining the risk, the government in several countries start to create their cryptocurrency. Know as Central Bank Digital Currency (CBDC), a digital form of a national fiat currency claimed by the central bank. Apart from other cryptocurrencies, this digital coin is fully-backed by faith and credit from the government. 

Using the CBDC approach, the government tries to maintain any risks that occur in the crypto transaction. The CBDC also increases technology efficiency in clearing and money transfer by removing the intermediary institution. All the transaction performs in a real-time peer-to-peer model where the money is moved directly from sender to receiver. 

CBDC becomes the best practice when talking about cryptocurrency. Having backed by the government, each money account keeps safety in the central bank. CBDC has become a strong inclusive instrument that enables every citizen to hold a free or at least low-cost bank account. Different from private currency, CBDC has a centralized authority to trace the exact location of every digital money. With this tracing ability, the government able to prevent any suspicious transaction that will harm the citizen, terrorism, or narcotic transaction. 

The traceable characteristic also facilitates the tax collection process. Prevent tax-avoiding by using a foreign bank, or unreported jobs become impossible to do. On the other hand, the central bank could operate save and standardize digital payment instruments. This instrument act as a national payment instrument to gain trust in a private financial and the whole national payment system. CBDC also increasing competitiveness in the payment business.


Given current trends development, introducing CBDC to the public still need a couple of years until all the infrastructure and risk are well calculated. CBDC will apply faster in countries where cash is being replaced quickly by digital payments method. But before that, regulating cryptocurrency may become a center of concern to facilitate citizen’s trading and investing activity.

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