When digital currencies and cryptocurrencies sprang to life, bitcoin was viewed as a direct challenge to central banks’ control of currency. After an early reluctance and hostility toward cryptocurrencies, central banks are starting to recognise and embrace blockchain — the highly innovative technological backbone behind bitcoin.
Blockchain covers a range of programmable technologies with adjustable parameters and algorithms, offering different ways to track and trace assets. The technology enables an unprecedented opportunity for managing the issuance of currencies.
There is a distinction between digital currencies in the broad sense and cryptocurrencies based on blockchain technology. Most money is already digital — it exists only as entries in computer databases. Central banks have different measures and controls for the amount of physical cash in circulation versus the amount of money held in bank accounts and elsewhere.