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India’s Very Own Digital Currency to be Launched Soon. How Different it is from Bitcoin

The Reserve Bank of India (RBI) has been preparing to roll out a central bank digital currency (CBDC) in phases by the end of this year. For a long time, many financial institutions across the world have been battling with the idea of digital currency; even before the current growth of Bitcoin and other cryptocurrencies. An officially recognized digital currency and a part of the day-to-day financial system; this idea has fueled many debates all over the world.

India’s Very Own Digital Currency to be Launched Soon

The CBDC’s introduction would be a historic first for India, as it would be the country’s first digital currency. A central bank, such as the RBI, is for supporting the country’s banking systems than functioning as a traditional bank. It functions as a sort of governing body. Thus, the CBDC would be a support system for the financial system or a complement to the existing structures.

In an interview with CNBC, RBI Governor Shaktikanta Das stated that the RBI may launch its first digital currency trial programs by December. This signals that this is only the beginning of a slew of new digital currencies. More and more currencies will be hitting the market in the future. Das added, “We’re being quite cautious about it since it’s a brand new product, not only for RBI but globally.”

What is the Central Bank Digital Currency?

The central bank digital currency (CBDC) is a digital or virtual currency issued by the central bank in the form of a tender. It is similar to existing digital/fiat currency in terms of functionality.

India’s Very Own Digital Currency to be Launched Soon

More crucially, it is a legally recognized coin with an existing financial body backing its function. It is also exchangeable one-to-one with fiat currency. The only difference between CBDC and private digital coins like Bitcoin and Ether is that it has a different form. It’s essentially the same as having your money digital, except the value remains the same.

How is it different from Cryptocurrency?

Cryptocurrencies, such as Bitcoin, vary in that they function more as commodities than as a representation of the exact value of a monetary system’s money. One Bitcoin, for example, does not equal one rupee. The greatest distinction is that one must invest in Bitcoin and acquire it with money. Another crucial reason is that these are extremely volatile and have no legal issuer. Whereas the central bank digital money has the RBI as the issuer; implying that the central bank digital currency can be considered money in every sense. For more such updates, keep watching this space!

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A digital money rush is great. A run, not so much

A digital money rush is great. A run, not so much. A statement that reflects that digital currency like Blockchain-based tokens is in trend now. However, in long term, this charm may fade due to the acceptance of these token may not be uniform.

digital money

Blockchain-based stablecoins such as Tether and the upcoming Diem are the new form of private money. These digital money Tokens don’t offer Bitcoin-type speculative thrills, however, seek acceptance instead as one-to-one clones of national currencies. This means that the market value of these tokens stays equivalent to its counterpart in physical currency. Such tokens have the potential to become a powerful part of the modern digital economy, provided we know how to prevent a run on them.

digital currency

Trust in physical cash is because of the support by regulators. The currency notes in our wallet are a promise from the central regulatory authority of the issuer country to pay the value written on it. In accepting it, we do not pay any thought to the creditworthiness of the lender. Whoever it’s passed on to will also take the banknote at face value. Not requiring due diligence on banknotes sounds common sense. However, this is actually a highly valuable property of money everywhere.

How NQA become the normal?

It is to be noted that as the digital stable coins proliferate globally, NQA may not hold. During the free banking era in the U.S., something similar was happening, when notes issued by a lender in Tennessee would sometimes be discounted by 20% in Philadelphia. There was constant haggling and arguing over the value of the issued notes in transactions. Therefore it was very hard to use private banknotes in transactions.

digital money

Things finally changed because of the Civil War. President Abraham Lincoln of America desperately wanted to raise money for the war effort. The government thought of raising money by selling bonds to newly chartered national lenders. Thus a law passed by Congress in 1863, this law also ushered in a uniform currency in the country.

Thereafter, tariffs were levied on banks for paying out other types of notes, driving them out of existence. The researchers argue whether stable coins are in a similar situation. In the current regulatory vacuum, these tokens will struggle to become no-questions-asked money. For NQA, they require the backing of the country including the necessary oversight. However, the rapid growth of the novel product has taken regulators by surprise. And the likelihood to attain the legal backing of the countries is very low.

Money in the 21st century may not need to be the official currency of a State. However, it still has to be no-questions-asked, like US Dollars. But that’s a power that only regulators can bestow and they should use it well.

For more updates like this, keep watching this space!

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The Country, El Salvador Legally Accepting Bitcoin as its Currency

Why is Nayib Bukele in the news?

The President of El Salvador country is Mr. Nayib Bukele. He said that Bitcoin will be considered as legal tender. He is sending the bill to the parliament to make it national currency. The Party named New Ideas Party enjoys a super majority in the legislature of El Salvador. Hence there is a strong likelihood that the bill will pass and bitcoin will be the national currency. It is a small country in Central America. The capital of El Salvador is San Salvador which is also the most populous city in it. The country shares a boundary with Guatemala in the southern and Honduras in the eastern.

Why is it needed? Let's have a look in detail

Bukele bitcoin

As the president will send the bill to parliament and if the bill approves then Salvador will become the first country with bitcoin as a national currency. It will be the first to adopt a virtual currency. There are three nations Panama, Ecuador, and El Salvador which have dollarized economy.

President says that for the short term it will create more employments and help provide financial inclusion to thousands of people who are outside the formal economy.

What does the tweet say?

President also tweeted about this big decision saying that Bitcoin has a market capitalization of $680 billion dollars. If we invest in it, it will further help the country’s GDP growth.

For more updates like this, keep watching this space!

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Bitcoin crashes on Elon Musk U-turn citing energy consumption

Cryptocurrency fans have counted Tesla boss, Elon Musk as among their championships. Bitcoin, cryptocurrency investors have risen more in this pandemic. In his recent tweet, he said, “it is high time there was a carbon tax!”. If we look at the decision from the environmental point of view, this may be the best decision. But on the other hand, this has created a huge mess in the stock market.

Tesla proposed purchasing a vehicle through bitcoin currency recently. And now we see a tweet about the carbon emission which is increasing due to bitcoin mining. He suspended vehicle purchases using Bitcoin. He has also mentioned that we are concerned about the environment. For Bitcoin mining and transactions, fossil fuels are used especially coal, and it has the worst emissions of any fuel. Due to this change in the stock market cryptocurrency’s value gone down 15% to a two-and-a-half-month low.

Bitcoin and Energy consumption

Bitcoin Power Consumption

Obtaining bitcoin is an energy-intensive endeavor. The chart shows the evolution of power usage, rising constantly from the year 2016 and increasing sharply in 2020.

On an annualized basis, it hit its current level of 149 terawatt-hours, an all-time high. The data if we compare to Google’s entire energy usage of 12.2 TWh, and approximately 200 TWh used by all data centers in the world. One more interesting fact is that if Bitcoin were a country, it would use around the same amount of electricity a year to mine as Switzerland does in total.

According to the IEA prediction, the situation could worsen, if miners used the most energy-intensive equipment, their consumption could rise to 500 TWh.

For more updates like these, keep watching this space!