While the world is taking a step towards accepting cryptocurrencies, the Reserve Bank of India initiated the first pilot in the digital currency on November 1st for teh wholesale industry. Following the announcement of the functionalities of the Central Bank Digital Currency Retail Pilot, the RBI discussed that the pilot would be under selected locations in an enclosed user group comprising the participating merchants, and customers.
RBI’s “Digital Legal Tender”
A popular news agency shared its reports that shares that the Reserve Bank of India defines digital currencies as “digital legal tender”. The virtual currency or “digital rupee” can be a safe store of value and can be exchanged with the present currencies.
The Central bank Digital Currency also known as the “Digital Rupee” or e₹-R is launched by the Reserve Bank of India today, and is similar to the present banknotes. It has a similar function and value. The only difference is that it is easy to use, and transacted digitally. The Digital Rupee can be exchanged for any other existing currencies.
The “Digital Rupee” is also considered the first cryptocurrency acceptance by India. While the country has repeatedly warned regarding the threats of cryptocurrencies as a financial asset that might risk the economic stability of the country, the “digital rupee” by the country is a huge step.
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Is the Digital Rupee Different From Cryptocurrencies?
Cryptocurrencies are decentralized, which means that it has no central authority and neither is bound by government chains or central banks. Since cryptocurrencies are built on blockchain architecture, cryptography is used to conduct secure transactions and make them impossible to breach.
Even with so many protections, in August 2010, a hacker located an error in the bitcoin protocol. After conducting several transactions without logging into the network, no data was stored which enabled the hacker to generate an infinite number of bitcoins.
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How Are Cryptocurrencies Formed and Used?
To understand the difference, it is important to know how cryptocurrencies are created.
All cryptocurrencies are created through the process of mining. Computers connected with advanced GPUs are used by the miners to solve difficult mathematical puzzles and problems and in exchange, cryptocurrencies are formed.
Traders and investors can buy cryptocurrencies from exchanges, and currency owners. They can also sell and trade them to investors, and traders. The cryptocurrencies can be stored in both hot and cold wallets. A cold wallet stores cryptocurrencies offline, while hot wallets hold the cryptocurrencies on online platforms.
Similar to UPI transactions, cryptocurrencies can be transferred and transacted using smartphones. The users can also utilize the P2P transactions and their bank accounts to convert their cryptocurrency holdings into cash.
India’s Perspective on Cryptocurrencies
According to the reports of a renowned news agency, the people of India in 2018 were warned that cryptocurrencies were not legal tender. A committee was formed by the ministers of finance, to develop a cryptocurrency bill in the country. However, the ban was canceled by the ministry.
Another bill of 2019, prohibited the use, holding, mining, issuing, transferring, and selling of cryptocurrencies. In case anyone violated the law, people might face up a huge fine or even imprisonment for ten years. However, in March 2020, the ban was reversed by the Supreme Court of the country.
In November 2021, Nirmala Sitharaman, the finance minister of India has raised an issue against cryptocurrency in the Rajya Sabha. She also informed that even though the government of the country has not taken strong steps to forbid cryptocurrency-related advertisements, it will also rise awareness through the SEBI and RBI.
The Government of India’s Union Budget of 2022-2023
In the Union Budget of India’s 2022-2023, the country levied a 30% tax on any virtual asset. It was also during this time, Sitharaman announced the development of central bank digital currencies which will be known as the “digital rupee”.
The RBI also informed in the reports that “CBDC or central bank digital currency is a legal tender that is issued by the Apex Bank in a virtual form. The former is similar to FIAT currency and is exchangeable. The concept is the same, only the form will be different”.
RBI also announced that “a CBDC, unlike cryptocurrencies, is not a commodity, and neither does it claim on digital assets or commodities. There are no issuers of cryptocurrencies, and are not a form of currency or money”.
The government of India is introducing the CBDC or Digital Rupee to reduce costs related to cash management, to make the economy cashless, and promote efficiency, and innovation in terms of payments. The CBDC will help India stay ahead in the competition.