Finance Minister
Nirmala Sitharaman, in a major announcement, said Tuesday the Reserve Bank of
India (RBI) will launch a blockchain-based digital rupee this year. The digital
rupee, in the works for some time now, will be India’s formal initiation into
the blockchain-based payments process.

Legislation on cryptocurrency
regulation and blockchain is awaited. The highly-anticipated Cryptocurrency and
Regulation of Official Digital Currency Bill has not made its way in the list
of subjects scheduled to be discussed with the budget session of Parliament.

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However, Sitharaman’s
announcement that transfer of virtual digital assets to be taxed at 30% has
caused significant momentum in the domestic crypto market.

What’s the
difference?

The core idea of
blockchain-based cryptocurrencies is that they are based on a decentralized
finance (DeFi) network. Consequently, the account books are neither stored with
a single authority nor is there a single centralized authority backing the
transactions conducted through the blockchain.

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Digital currency,
on the other hand, is backed by a centralized authority. Therefore, while it
has all the bells and whistles of electronic money it does not have crypto’s
decentralized feature.

A digital
rupee — why?  

The Reserve Bank
of India has repeatedly cautioned against trading in cryptocurrency because of
its volatile nature. Concerns have also been raised about the use of
cryptocurrency in illegal activity. However, despite concerns, experts do
believe that blockchain, as a technology, has immense potential.

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Therefore, the RBI
is looking to go the digital rupee way in order to use the technology while trying
to protect investors from the volatilities of the crypto market.

What the
digital rupee will be like?

The digital rupee
is just intangible cash. Money, that is digital rupee, will move through
two-party open-source contactless transaction flow. So, when buying stuff online
through banks or digital wallets, people will be using digital rupee. The same
digital rupee will turn into liquid cash when one withdraws money from an ATM,
according to experts who spoke to Times of India.