# From Bitcoin to Central Bank Digital Currencies: Making Sense of the Digital Money Revolution
## 4 Benefits and Risks of CBDCs
### Risks of CBDCs  
Regarding risks stemming from the introduction of CBDCs, the literature mentions:  
**Risks to the business models of commercial banks. ** If central banks begin to compete with the private banking sector for deposits, offering to retail depositors a default risk-free venue alternative to bank deposits, then significant deposit balances could shift to the central banks from the commercial bank accounts, which would have implications for the balance sheets of the latter institutions and, thus, the amount of credit they could provide to the economy [54]. This disintermediation would also affect the ability of commercial banks to \"perform essential economic functions, such as monitoring borrowers\" [51] (p. 63). Furthermore, \"commercial banks could lose a valuable interface with their consumers given that in some CBDC designs the \"know-your-customer\" function could fall to the central bank\" [43] (p. 9). Some warn of far-reaching consequences: \"divorcing payments from private bank deposits and even putting an end to banks' ability to create money\" [88] (p. 1). **Increase of the systemic risk of the private banking sector. ** If central banks begin to compete directly with the private banking sector, then due to their superiority in terms of default risk, there will be an increase in the liquidity risk of commercial banks, which in turn may increase the probability of severe financial instability episodes. A negative confidence shock on a particular commercial bank may lead its clients to convert the bank deposits into a form of CBDC and potentiate a bank run. A bank run may undermine the overall confidence on the private banking sector and increase the rate of substitution of commercial bank deposits for CBDC, and the pace and intensity of the contagion effect [51; 77; 88]. Due to its grave impact, works such as [89] have studied the likelihood of bank runs as a function of the system characteristics and of the concrete features of the CBDC. **Privacy risks. ** Current payment methods provide varying levels of privacy, from the almost complete anonymity of physical cash transactions to full traceability and documentary verification and monitoring in regulated bank accounts [68]. The design of a CBDC should provide/allow an adequate balance between public interests (usually best protected by unlimited access to information) and individual rights, which include privacy. To provide the required privacy characteristics, the design of the digital coins must concern itself with supporting the desired mix of functionalities, embracing \"privacy by design\" [90] since user privacy is seldom an emerging property of information handling systems. Furthermore, current regulations, particularly regarding anti-money laundering, prevent fully anonymous electronic payments [68] even though, in practice, the international reach of CBDCs implies interoperability between sovereign regulatory frameworks, raising challenges in ensuring transnational regulatory validity [58]. The required balance is achievable by segregating specific applications to specific kinds of account that impose limits on characteristics such as amounts, functionalities, or anticipated use. However, even for the most limited accounts, some minimal level of user identification may be required for account creation. A few general approaches have been explored to allow for different levels of privacy in CBDC usage:  
* The European Central Bank [91] made a proof-of-concept using time-limited \"anonymity vouchers\" that afford their owners the possibility of performing restricted value transactions with details not relayed to the monetary authorities. These vouchers are issued freely, but at a defined rate. Since a user is free to use or not each voucher, this limits the information regarding actual usage that the monetary authority can store.