Although the most popular digital currencies are cryptocurrencies like bitcoin, many national governments are considering issuing their own centralized digital currencies. Fiat currency, which exists in physical form, is a centralized system of production and distribution by a central bank and government agencies. Prominent cryptocurrencies, such as Bitcoin and Ethereum, are examples of decentralized digital currency systems. The term ‘digital currency’ refers to money exclusively available in digital or electronic form. It is also known as cyber cash, digital money, electronic money, or electronic currency. Electronic wallets or computers connected to the internet or specified networks conduct digital currency transactions.
These efficiency gains can then be passed along to customers in the form of lower fees. The monetary object representing this social credit may exist in physical or nonphysical form. In the United States, physical cash takes the form of small-denomination Federal Reserve bills and U.S. Cash payments are made on a peer-to-peer (P2P) basis, for example, between customer and merchant. As the customer debits his or her wallet, cash is credited to the merchant’s cash register, and the exchange is settled. Hardly any time is spent inspecting goods and money in small-value transactions.
They are attempting to accommodate the public’s need for digital currencies, as evidenced by the growing use of private virtual currencies, while also avoiding the more harmful repercussions of such private currencies. CBDCs can offer users advantages such as liquidity, scalability, acceptance, transaction convenience, anonymity, and speedier settlement. With the government’s support infrastructure, CBDC adoption will improve and make it easier for individuals to utilise, much as UPI made it easier to use digital currency. Most notably, central banks have majorly disrupted the traditional model of the central bank. With more people relying on digital currencies than ever before, some are ditching their “traditional” banks and financial institutions in favor of digital currencies that are available 24/7. This, in turn, has forced banks to make some of their own changes to keep up with the competition.
An important issue is how to enforce property rights stored in the blockchain for assets that exist in the physical world. This is an ongoing challenge for DeFi and one that may never be fully resolved. To illustrate the double-spend problem, consider the example of a dollar stored in a personal computer as a digital file.
Apps like Paytm, Google Pay, and PhonePe have made transactions easier and quicker. Treasury bonds, Bitcoin’s extreme volatility makes it a speculative reserve asset, potentially exposing public funds to unnecessary risk. Without clear oversight, a government-held Bitcoin stockpile could invite market manipulation risks, raising ethical and transparency concerns. Ultimately, the future of cryptocurrency is full of possibilities and uncertainties. It will be fascinating to witness how this disruptive technology continues to shape our financial landscape and empower individuals around the world.
