Digital Rupee – A misunderstood decentralized digital currency?

A couple of days back, RBI finally piloted its long-awaited, curiosity-invoking, and fundamentally futuristic digital rupee. 

This pilot test was conducted on November 01 and since then, digital currency enthusiasts can’t help but include it in daily conversations.

In fact, it seems that this digital currency is bound to transform the entire Indian financial ecosystem. However, to understand its workaround better, we must first understand what it does.

Understanding digital rupee

The central bank digital currency (or digital rupee) is a currency, just digital. The cash that you carry in your pocket could now be carried digitally. While this money is still issued by a central bank, the difference lies in the fact that it allows contactless transactions. 

But wait, doesn’t it sound very familiar with cryptocurrency?

If it does, that’s because it is!

The difference between these types of currencies is that a cryptocurrency is a decentralized asset that operates on blockchain technology. It goes unsaid that the transactions conducted on a blockchain are untraceable, something that’s quite opposite of how a digital currency works.

And this very analogy of conducting transactions on a blockchain is the problem. The absence of intermediaries like banks and financial institutions has contributed a lot to the growing concern about the loss of assets and unauthorized transactions.  

The introduction of CBDCs on the other hand is ‘expected’ to significantly reduce unauthorized transactions because it’s issued by the RBI, giving it a legal tender in a digital form.

Why it exists?

Imagine a digital coin. You know that it works on a decentralized blockchain. Now take away this decentralized blockchain. 

What do you have left?

Transactions that are accessible by the government and financial institutions. 

The lack of an anonymous structure takes away the entire essence of cryptocurrencies. However, the argument presented by the RBI right now also comes with its strong claims.

The introduction of the digital rupee is not only going to reduce the transaction cost but will also allow the governments to control how money enters or leaves the country.

This not only reduces money laundering but also allows them to understand the budgeting and economic options the country has.

The future

The presence of a ‘centralized’ digital currency that allows you to make payments in Bitcoin and Ethereum is something that’s bound to invite mixed reactions.

Over the past few years, cryptocurrencies have achieved significant popularity in India. The amount of money involved in the digital assets was something that was bound to come with its own regulations, something we’ve been witnessing since the start of 2022.

While some arguments claim that the digital rupee is going to popularize the concept of web 3.0 and related assets in India, others claim that it completely snatches the principle of decentralized digital assets.

It’s only a matter of time before we see how the presence of the digital rupee in a competitive financial environment performs… 

CONTENTS

Stay up to date with latest crypto news and events. Subscribe to our newsletter