A digital currency, also known as a rupee, is an electronic form of money that can be utilized in contactless transactions. Finance Minister Nirmala Sitharaman announced during the presentation of the Union Budget 2022 that the Reserve Bank of India (RBI) would soon launch its digital currency. The Central Bank Digital Currency (CBDC), the RBI’s digital currency, will be launched in 2023.
The introduction of a central bank digital currency will give the digital economy a significant boost. Digital currency will also result in a more efficient and cost-effective currency management system, Sitharaman stated in her Budget speech.
Some people are perplexed by the distinction between cryptocurrency and digital currency. So, are they the same thing? What is the distinction between the two? The digital rupee will be the digital form of physical cash issued by the RBI and, hence will be sovereign-backed. Cryptocurrencies, meanwhile, are not backed by a government or central bank and can be used as an asset class or a payment mechanism, according to Mihir Gandhi, Partner & Payments Transformation Leader, PwC India.
The digital rupee differs from Bitcoin, Ethereum, and other cryptocurrencies since it will be government-backed. Second, because the digital rupee has inherent value due to government backing, it will be equivalent to possessing a physical rupee equivalent,” said Manoj Dalmia, Founder, and Director of Proassetz Exchange. In short, CBDC is simply the digital form of the country’s legal currency; it is not a private currency.
A cryptocurrency is a distributed digital asset and a medium of exchange that uses blockchain technology. However, it has mainly been controversial due to its distributed nature, which means that it operates without the intervention of any intermediary such as banks, financial institutions, or central authorities. As a result, it is immune to government interference or influence. Furthermore, its value is determined by free-market forces and is unrelated to any commodities. As a result, it has no intrinsic value, said Archit Gupta, Founder, and CEO of Clear.
In contrast, the Reserve Bank of India’s (RBI) Central Bank Digital Currency (CBDC) will be legal tender in digital form. It is similar to a fiat currency (government-issued currency) and can be interchanged one-on-one with the current currency one-for-one, he added.
When a currency is issued by the country’s Central Bank, it is considered as a legal tender for the procurement of goods and services.
Digital rupee vs bitcoin vs doge vs Ethereum – What are the similarities?
It is similar to bitcoin in terms of the technology used, which is Blockchain technology, but it is completely different if we go by the definition of cryptocurrency, according to Manoj Dalmia.
Digital rupee vs cryptocurrency
The primitive variation between the digital rupee and cryptocurrency is that the digital rupee has more probability of being streamlined since it is issued by the RBI. Cryptocurrencies, meanwhile are distributed and cannot be organized by a single entity, according to Vinshu Gupta, Founder, and Director of Nonceblox Blockchain Studio.
The digital rupee may become legal tender, but cryptocurrencies will not be considered legal tender in India shortly. Cryptocurrency is a privately created asset that poses a significant threat to the country’s macroeconomic and financial stability, according to RBI Governor Shaktikanta Das on Thursday. People who invest in cryptocurrencies do so at their own risk, and they should be aware that these contain no underlying assets, according to RBI governor Shaktikanta Das.
It remains to be seen what the precise technical specifications of the Digital Rupee are. While both can be redeemed for cash, the fundamental difference is that, according to the CBDC, the digital rupee may be legal tender, whereas cryptocurrencies will not be legal tender in India anytime soon.
Instead of a decentralized blockchain, the CBDC could be on a private or authorized blockchain. Banks and other financial institutions in collaboration with the central bank (in this case, the RBI) would host nodes in an authorized blockchain network to facilitate transactions for their respective clients. No one else would have the same role or obtain an entry to the authorized blockchain besides them, stated Sumit Gwalani, Co-Founder of Neobank Fi.
The RBI has been outspoken in its opposition to private cryptocurrencies, claiming that they could jeopardize financial stability.
