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Cryptocurrency vs CBDC

  • April 20, 2022
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Cryptocurrency vs CBDC

Subject: Economy

Why in the news?

Deputy Governor of the RBI called cryptos worse than a Ponzi scheme and argued against “legitimizing” them. Yet, the RBI announced that it will float a Central Bank Digital Currency (CBDC).

Differences:

BasisCryptocurrency Central Bank Digital Currency
Meaning Digital token issued  by a private institution or firm.Central bank digital currencies are digital tokens, similar to cryptocurrency but issued by a central bank.
Legality Not a fiat currency as not backed by the government.A central bank digital currency is the digital form of a country’s fiat currency.
Technology Based on cryptography and blockchain technology i.e a public ledger needs every user consent for transaction.Central bank digital currencies are designed to be similar to cryptocurrencies, but they may not require blockchain technology or consensus mechanisms.
Intrinsic value No intrinsic value but used for transaction due to acceptability, scarcity and anonymity.They are pegged to the value of that country’s fiat currency.
Regulation Cryptocurrencies are unregulated and decentralized thus, involving anonymous transactions.As a centralized form of currency, they may not anonymize transactions as some cryptocurrencies do.
Effect on monetary policy Complicates monetary policy transmission for being a parallel unregulated currencyCBDCs promote financial inclusion and simplify the implementation of monetary and fiscal policy.
Value Cryptocurrencies are highly volatile, with their value constantly fluctuating.CBDCs, backed by a government and controlled by a central bank, would provide households, consumers, and businesses with a stable means of exchanging digital currency.
Acceptability Their value is dictated by investor sentiments, usage, and user interest.Legal backing
Spending Double spending as software on a computer

can be used repeatedly.

 

Fiat currency has the property that once spent, it cannot be spent again except through forgery, be-

cause it is no more with the spender.

Fiat Currency-Fiat money is a government-issued currency that is not backed by a physical commodity like gold or silver. It is considered a form of legal tender that can be used to exchange goods and services.

Cryptocurrency vs CBDC
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