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How Different Is the Digital Rupee From Cryptocurrency? There is no direct comparison between the digital rupee and cryptocurrency, as both serve different purposes

By Alankar Saxena

Opinions expressed by Entrepreneur contributors are their own.

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The Reserve Bank of India (RBI) has launched its Central Bank Digital Currency (CBDC)-Retail pilot project, called the digital rupee. The digital rupee for wholesalers has also been launched for making large transactions, while the second phase is for retailers or everyday users. A total of nine central banks, including the State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC, are taking part in this pilot project.

Most people confuse the digital rupee with cryptocurrency as both are virtual in nature. But, indeed, both are very different from each other. There are several key things that differentiate them from each other.

What is a digital rupee?

The digital rupee would be just the digital form of the physical rupee, which can make transactions and settlements easier than ever before. It can be exchanged at par with physical cash and can act as a safe store of value. It can also be a store of value of physical cash or electronic deposits. The digital rupee would be legal and acceptable for the wholesale market, making large transactions in government securities issued by the RBI.

What is cryptocurrency?

A cryptocurrency is a form of currency that is virtual and uses cryptography to secure transactions. It is a peer-to-peer system where anyone can send and receive payments without an intermediary. It works on a public blockchain infrastructure that records all transactions.

Digital rupee vs cryptocurrency

  • In simple terms, cryptocurrency is a decentralized form of money with no intermediaries in the transaction process. On the flip side, a digital rupee is a centralized form of money issued and regulated by the RBI.
  • The digital rupee uses a private blockchain, while cryptos operate on a public blockchain in a decentralized infrastructure.
  • Users making payments via cryptos remain anonymous. However, it is not the same case with the digital rupee.
  • Regarding use cases, the digital rupee is just used for payments and other monetary transactions. But cryptocurrencies are categorically both assets and currencies.
  • The digital rupee responds to inflationary pressure. However, crypto is a currency that acts as a hedge against inflation.
  • When it comes to scalability, the digital rupee is efficient as they operate on permissioned networks similar to databases.

There is no direct comparison between the digital rupee and cryptocurrency, as both serve different purposes. The digital rupee is a step ahead of taking India towards the digital revolution. There are many interesting benefits of digital forms of currency.

What are the features of the digital rupee?

  • Unlike the physical note, the digital rupee would neither have any specific lifeline nor get damaged.
  • Since India is now moving towards becoming more of a digital and cashless economy, the digital rupee would save on the cost of printing and would be more accessible too.
  • The digital rupee appears as a liability on the central bank's balance sheet.
  • It would be easily convertible against commercial bank money and cash hassle-free.
  • Holders would not need a bank account to make a transaction.

How can the digital rupee benefit people?

As most businesses in the post-pandemic era now prefer online transactions over cash, introducing the digital rupee would be one step toward a cashless economy. Risks such as money laundering or theft would easily be negated this way. Since cash moves from one person to another very easily, the government can now keep track of it. With the usage of the digital rupee, corruption and human errors would also decrease drastically.

The significant benefit that individuals can get through the digital rupee is the ease of making cross-border transactions around the clock. Like checking the bank balance, one can check their balance on the digital wallets as we advance. In the coming years, the digital rupee will become just another mode of payment for purchasing goods and services. It would reduce the dependencies on physical cash and cut down costs, storage, and transportation.

The digital rupee will increase transparency and efficiency, allowing for real-time tracking and ledger maintenance. Since the RBI backs it, the digital rupee would mitigate the volatility risk. It would bring all the benefits of crypto while also maintaining the safety net of regulated and legal tender.

The digital rupee is a progressive step towards the Digital India vision. After it became part of mainstream society, things would become more accessible to the masses and the government.

Alankar Saxena

CTO and co-founder, Mudrex

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