02 May Cryptos and CBDC
Posted at 02 May 2022 in Current Affairs 0 Comments
Cryptos and CBDC – Today Current Affairs
The central bank must note that a Central Bank Digital Currency (CBDC) can only be a fiat currency and not a crypto.
Today Current Affairs
What are crypto assets?
- A crypto asset is a digital asset; but not all digital assets are crypto assets.
- The distinguish features of crypto assets:
- uses cryptography
- depends on distributed ledger technology
- no need for a third party such as a bank to issue crypto assets
- have three primary uses: as an investment, a medium of exchange, and to access goods and services.
- Crypto assets are commonly known as cryptocurrencies such as Litecoin, Ripple, Bitcoin, and Ethereum.
What is CBDC? The Hindu Analysis
- A CBDC is a legal tender issued by a bank in a digital format.
- Also known as digital base money or digital fiat currencies, a CBDC is no different from hard cash, apart from the fact that they are in a digital or virtual form.
- It is not meant to replace hard cash but coexist as an additional form of payment method.
What were the different stands taken on cryptos?
- Finance minister– In the Budget session, it was said that Cryptocurrency will be discouraged via taxation and capital gains provisions.
- RBI Governor– The Governor of the RBI highlighted that private cryptocurrencies are a big threat to our financial and macroeconomic stability.
- Also he said that these cryptocurrencies have no underlying asset.
- Deputy Governor of RBI– A Deputy Governor of the RBI called cryptos worse than a Ponzi scheme and argued against legitimizing them.
- Supreme Court– The Supreme Court of India has asked the Government whether or not cryptos are legal.
How do cryptos become acceptable as tokens for exchange? The Hindu Analysis
- A currency is a token used in market transactions.
- Historically, commodities (copper coins) have been used as tokens since they themselves are valuable.
- But paper currency is useless till the government declares it to be a fiat currency as it derives its value from state backing.
- Cryptos are a string of numbers in a computer programme and there is no state backing.
- Cryptos acquire value and can be transacted via the net which enables them to function as money.
Is it possible to ban cryptos? The Hindu Analysis
- The total valuation of cryptos recently was upward of 2 trillion dollars which is more than the value of gold held globally.
- Cryptos which operate via the net can be banned only if all nations come together.
- Even then, tax havens may allow cryptos to function, defying the global agreement.
What is the difference between CBDC and cryptocurrencies?
What are the concerns of CBDC? The Hindu Analysis
- Blockchain enables decentralisation where everyone on the crypto platform has a say but, central banks want a fiat currency to be exclusively issued and controlled by them.
- Theoretically everyone can ‘mine’ and create crypto unlike the centrally controlled CBDC. Today Current Affairs
- Solving the ‘double spending’ problem and being a crypto (not just a digital version of currency) seems impossible.
- A centralised CBDC will require the RBI to validate each transaction.
- CBDCs at present cannot be a substitute for cryptos that will soon begin to be used as money. This will impact the functioning of central banks and commercial banks.