# From Bitcoin to Central Bank Digital Currencies: Making Sense of the Digital Money Revolution
## 2 From Bitcoin to Central Bank Digital Currencies (CBDCs)  
When dealing with digital currencies, a key issue is to prevent double-spending, i.e., the risk of someone using the same cash tokens more than once. Unlike physical banknotes and traditional instruments to handle bank deposits, such as checks and debit and credit cards, which are difficult to duplicate, copies of digital artifacts are typically easy to make and indistinguishable from one another, which is a concern for digital cash. Before Bitcoin, the most well-known attempts to create a digital currency were proposed by [PERSON]. However, DigiCash [22] and Ecash [23] employed a trusted third party to keep a record of all transactions, thus preventing users from spending more than their true balance. A key feature of Bitcoin is solving the double-spending problem using only technological mechanisms, thus dispensing with the need for trusted third parties and enabling a system where payments can be safely made peer-to-peer and currency issuance is decentralized [13]. To this end, Bitcoin relies on Blockchain, one of various distributed ledger technologies (DLT). Transactions are registered on an append-only database, replicated across a distributed network of peers, who only add new records to the existing ones after agreement using a consensus protocol. The use of timestamps and cryptographic mechanisms render recorded information virtually immutable. Additionally, more recent Blockchains can store and enforce smart contracts, which are pieces of machine-readable code that execute automatically once predetermined conditions are met [24]. The Bitcoin embodies a libertarian philosophy, namely ideas about individual privacy and limited government, as acknowledged by the European Central Bank: \"The theoretical roots of Bitcoin can be found in the Austrian school of economics and its criticism of the current fiat money system and interventions undertaken by governments and other agencies (... )\" [25] (p. 22). It is close to the concept of ideal money advocated by the right-libertarians, namely [PERSON], who argued in favor of ending the monopoly of central banks in producing, distributing, and managing money [26]. The timing of the Bitcoin launch may have fostered its popularity, capitalizing on a widespread distrust of banks, monetary authorities, regulators, and politicians, due to the global financial crisis caused by subprime mortgages that spread to sovereign debt. Table 1 presents a broad comparison between Bitcoin and traditional fiat money. The algorithm underlying Bitcoin constrains supply to 21 million units by design. It rewards miners who validate new blocks with a fixed number of newly minted units (the \"block reward\") and transaction fees. The block reward started at 50 Bitcoin, and it is halved every 210,000 new blocks, which has happened roughly every four years. The most recent halving occurred in May 2020, cutting the block reward to 6.25 units. Transaction fees are a small portion of miners' rewards, estimated to be on average just 6.5% of the total compensation [27]. However, the importance of transaction fees will increase and arguably constitute the mining activity's overall reward. According to some, transaction fees will be enough incentive for the mining activity to continue, based on the assumptions that Bitcoin will continue to appreciate and energy costs will substantially decrease as renewable sources gain preponderance in the production mix [27]. Others claim that the reward mechanism for Bitcoin will change with a move from the proof-of-work to proof-of-stake consensus [27]. But many, especially in academia, argue that if the mining rewards come solely from transaction fees, then the Blockchain will become unstable, and the mining activity may cease altogether, precluding new in-chain transactions [28; 29]. This scenario raises the question of how much the transaction fees should increase to maintain the profitability of the mining activity.