What is Central Bank Digital Currency (CBDC)

A Central Bank Digital Currency (CBDC) is a digital form of a country's national fiat currency, issued and controlled directly by the country's central bank. Unlike cryptocurrencies which are decentralized, permissionless, and controlled by code and community consensus CBDCs are fully centralized digital assets backed by government authority and legal tender status.

HOW CBDC DIFFERS FROM CRYPTOCURRENCY

Control: CBDCs are issued and managed by central banks (like the Reserve Bank of India or the US Federal Reserve). Cryptocurrencies like Bitcoin operate on decentralized networks with no single controlling authority.
Privacy: CBDC transactions are visible to the issuing government. Crypto transactions on public blockchains are pseudonymous.
Supply: CBDC supply is controlled by monetary policy. Bitcoin has a fixed 21 million coin supply encoded in its protocol.
Programmability: CBDCs can be programmed with expiration dates, spending restrictions, or geographic limitations possibilities that raise civil liberties concerns.

TYPES OF CBDC

Retail CBDC: Digital currency for use by the general public replacing or complementing physical cash. India's e-Rupee, China's e-CNY, Nigeria's eNaira, and the Bahamas' Sand Dollar are retail CBDC examples.
Wholesale CBDC: Digital currency for use exclusively by financial institutions for interbank settlement and cross-border payments. More technically straightforward and less politically contentious than retail CBDCs.

INDIA'S DIGITAL RUPEE (e-₹)

The Reserve Bank of India launched the Digital Rupee pilot in December 2022. The e-₹ is issued as a digital token representing one Indian Rupee and is distributed through participating banks. It uses a tiered architecture and is accessible via digital wallets from partner banks. The RBI positions it as a complement to not replacement of physical currency.

GLOBAL CBDC LANDSCAPE

As of 2024, over 130 countries (representing 98% of global GDP) are exploring CBDCs. China is the most advanced with e-CNY having hundreds of millions of active users. The EU is developing the Digital Euro. The US is researching a potential Digital Dollar.

Terms in addition to the Central Bank Digital Currency (CBDC)

Blockchain

A blockchain is a subset of a distributed database. The Bitcoin inventors originally prototyped the system in 2008. This modern database is made up of separate blocks that are connected together in a chronological chain. Blockchains may be used to store a wide range of data types. It has mostly been utilized as a public ledger for bitcoin transactions to date. A peer-to-peer network comprised of independent nodes uses a consensus process to ensure the blockchain's security and legitimacy. Each node in the network keeps a public and immutable copy of the data.

2 Factor Authentication (2FA)

2 Factor Authentication is a security measure with two layers. It is used by the majority of cryptocurrency exchanges. To log in, you must provide not only a password, but also a code obtained, for example, from the Google authenticator.

Airdrop

An airdrop is a method of distributing coins. End users can typically obtain coins for free or in exchange for doing a small task, such as subscribing to a newsletter, sending a tweet, or inviting others via a personal affiliate link. Cryptocurrency airdrops — the act of depositing cryptocurrency into public crypto wallets — are utilized as a marketing, liquidity creation, and network bootstrapping technique for many different types of blockchain initiatives.

Altcoin

Altcoin - "alternative coin" - is any kind of digital currency other than Bitcoin. Since the launch of Bitcoin, the world's first digital currency, many altcoins (as well as supporting blockchains) have been created. Altcoin digital currencies share many similarities to Bitcoin, but consistently and have significant differences. There are about 20,000 altcoins, and this number is expected to grow significantly in the coming years. Altcoins often develop Bitcoin features. Ethereum, currently the most widely used blockchain, supports digital contracts and separate applications where Bitcoin does not. Altcoins are also often created to cater to the needs of different users. The Litecoin blockchain, for example, can process payments quarterly for the duration of Bitcoin.

Cold Storage

Cold storage is the way to store cryptocurrency offline. The word refers to the use of offline wallets that are not connected to the internet. Cold storage is the most secure way to keep cryptocurrencies since an offline currency becomes less likely to be hacked and stolen. Paper wallets, printed renditions of private keys, and offline hardware and software wallets are all examples of cold storage.