Web 3.0: Cryptocurrency, Blockchain, CBDC

There are many questions I’ve got this year on crypto. However, when it comes to Indian investors, few of the common questions were around Central Bank Digital Currencies or CBDCs. Are they going to be cryptocurrencies? How are they going to be minted? Will CBDCs replace our currency? 

The simple answer to all of these questions is as follows: It’s all in the design of the CBDCs, and the truth is there are no concrete details on how a CBDC in India is going to be issued. However, here are a few smart speculations around it.

The first and foremost is that CBDCs will be an extension to building a completely cashless economy. We already have high-performing digital payment services in the country. You can easily transfer cash via these methods. So, the main question is how is CBDC going to be different from the existing digital payment systems?

For one, the most important factor we’re looking at is if CBDCs are going to be built on a blockchain or not. If yes, it can bring many benefits to the monetary system. This can enable lower transaction costs and achieve settlement efficiency since the transactions are settled on the blockchain itself.

Another major point we understand is CBCDs can be legal tender complimenting the sovereign currency i.e., the Indian Rupee. Here, CBDCs can improve the economy if created with a limited supply—something like gold or bitcoin, where we can also use it as a reserve currency for the country. If the CBDCs are issued the same way as the Indian Rupees are issued, then we are looking at another digital form of the existing currency on a blockchain. 

Additionally, there are other blockchain-related parameters we need to take into consideration—whether CBDCs are going to be decentralised or not, will it be permissionless or not, and so on.

We have seen Bitcoin as the greatest example of a decentralised system where you have different people/nodes validating transactions on a shared public ledger. When it comes to the monetary system of a country, we need to look at the wants and needs of the system and build something accordingly. Both centralised and decentralised chains or public and private chains have their own benefits and drawbacks.

For example, in a public ledger, all transactions are public information. In a decentralised system, you have multiple decision-makers involved. A centralised digital currency can customise the coins/tokens accordingly and those parameters will determine the features of a CBDC.

Some countries have already started experimenting with CBDCs and we can learn from how they have performed in their economies. India, as a diverse and highly populated country, has its unique requirements. The government is doing a fantastic job noting these developments and taking the next steps towards the betterment of the economy. We look forward to the implementation of good infrastructure around CBDCs taking into consideration all these factors.

Great developments are happening in Decentralised Finance (DeFi) as well. We would like to see if the government has any plans to develop systems similar to that where people can make use of CBDCs to facilitate more benefits through lending, borrowing and so on. Again, these are advanced systems to think of right now, but we believe this is going to be something very common in the future.

Last but not the least, the most important question is the coexistence of cryptos like bitcoin or ethereum when there are CBDCs. We hope to see these cryptos can be classified as gold or other asset classes.

To add to that, we look forward to the regulations from the Government on cryptos and details of CBDCs. This will further clear all doubts on the classification of cryptos and their taxation. More importantly, it’ll provide an environment where investors, entrepreneurs, and businesses can confidently come into this space.

We foresee India becoming a leading nation for all things blockchain-related. We have the resources in terms of the talent pool and intellect. We have seen Polygon, an Indian-born project make it big in the entire crypto ecosystem. Crypto regulations can promote achieving this status sooner.

Furthermore, it can help investors to distinguish between scams and genuine projects. With the great global adoption of crypto, the number of scam projects is also increasing. These are mainly focused on those investors who still find crypto and blockchain to be a tech-savvy sector. A regulatory framework can make it easier for every type of investor to get into crypto. However, we strongly recommend every investor be well educated about the assets they invest in.

Finally, when it comes to our business, ZebPay is one of the oldest crypto exchanges to start functioning in India back in 2014. Since then, we’ve been following strict KYC and AML policies. We have always voiced for regulations around this industry. We will continue with our practice of self-regulation until there is an official crypto bill from the government. However, the recent steps were taken by policymakers towards a crypto bill—to discuss and learn the requirements and challenges in the industry are very healthy and welcoming. As an exchange and a business, we will adapt to the market and will always stay compliant with applicable laws and regulations.

To sum it up, we’re glad to see the government’s efforts towards complete cashless payments. With CBDCs, we look forward to seeing a new and highly efficient, and cost-effective system that benefits the economy as well. We also hope to see CBDCs and cryptos like Bitcoin and Ethereum co-exist. CBDCs on a blockchain with a limited supply as a concept may be very beneficial for the Indian economy.