What is Digital Rupee or CBDC and how blockchain technology will help in India's crypto rollout? | Trendsfirst


The currency, called 'digital rupee', will be issued by the Reserve Bank in digital form and will be fungible with physical currency. However, the exact regulation governing this Central Bank Digital Currency (CBDC) is yet to be finalized.

New Delhi, India: Finance Minister Nirmala Sitharaman presented the Union Budget 2022 on Tuesday, announcing that the Reserve Bank of India (RBI) will issue India's own digital currency this fiscal year utilizing blockchain and other technologies. The creation of a central bank digital currency (CBDC) will provide the digital economy a significant boost. According to the minister, the digital currency will aid in the currency management system. The 'digital rupee,' as it will be known, would be issued by the Reserve Bank in digital form and will be fungible with actual currency. The specific legislation controlling this Central Bank Digital Currency (CBDC) is still being worked out.

What is CBDC or Digital Rupee?

CBDC is a digital or virtual currency but it is not comparable to the private virtual currencies or cryptocurrencies -- Bitcoin, Ethereum, Cardano, Litecoin -- that have mushroomed over the last decade. Private virtual currencies do not represent any person's debt or liabilities as there is no issuer. They are not money and certainly not currency.

CBDC is the same as currency issued by a central bank but takes a different form than paper (or polymer). It is a sovereign currency in an electronic form and it would appear as a liability (currency in circulation) on a central bank's balance sheet. The underlying technology, form, and use of a CBDC can be molded for specific requirements. CBDCs should be exchangeable at par with cash.

What is Blockchain Technology?

Blockchain technology is a digitized and decentralized Digital Ledger Technology (DLT) that keeps a track of digital transactions. Blockchain technology gives access to a public ledger consisting of all the transactions in a system of networks. As a database, a blockchain stores information electronically in digital formats.

The technology is called blockchain as it creates a block on every transaction which act like a chain where every block is added in chronological order. The new block would contain a link to the previous block. Acting like a banking system where every account activity is recorded, the blockchain will constitute the bank's financial transactions throughout its history and a block would be an individual bank statement.

So, the blockchain would have the records of the requester's transactions from the first transaction (first block) to the most recent one. Each block is protected by encryption because these blocks are connected to each other through electronic means.

How does blockchain technology work?

The main purpose of its technology was to timestamp digital documents so that they could not tamper. When someone requests a transaction (involving contracts, records, currency, etc.), it transmits to a P2P network which consists of computers known as nodes. These nodes validate the transaction and user's status using algorithms. Once it verifies the transaction it is added to the ledger. This means a new block adds to the blockchain in a way that is it unalterable, and the transaction is now complete.

Originally Posted by Jagaran English

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