While both the Central Bank Digital Currency and cryptocurrencies work solely through technology, each has its own unique characteristics that make it different from one another.
Let’s begin with a case in point with the decentralised nature of Bitcoin (one of the primary examples of a cryptocurrency for the sake of this discussion). BTC is a cryptocurrency that isn’t governed by any central authority — neither by central banks and other financial institutions nor by its mysterious developer who lurks behind the name of Satoshi Nakamoto. On the other hand, CBDCs are governed and distributed by central bank and regulatory authorities like the RBI in India. This means that transactions and issuance of this currency will run through the government’s review and approval. The limits and distribution of CBDCs will also depend on the RBI. This governing body will be in charge of producing new digital coins should there be a need to release more.
Bitcoin has a maximum supply of ~2 Crore BTC set by its pseudonymous creator. Since BTC has no central authority, no one can change its maximum count—unless the protocol is altered, which is highly unlikely. CBDC, on the other hand, promises less volatility and greater security, something that cannot be controlled with a highly volatile asset like Bitcoin. Bitcoin also serves as an asset or a commodity that can be bought and sold on cryptocurrency exchanges or marketplaces. A CBDC, in contrast, is a digital legal tender and the only way to get it is through central banks.
While both the CBDC and Bitcoin work pretty much the same today, we’ve learned that each still offers its own unique potential. So, is India’s own digital currency really far from the uniqueness of BTC and the wonders it can offer?
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