China in a significant move has launched a trial of digital yuan in four urban centres of the country for specific services even as the world grapples with the containment of Covid.

What is a cryptocurrency? Discuss how a vibrant cryptocurrency segment could add value to India’s financial sector. (250 W)

Prelims Perspective:-

1. Subtle differences btn digital and virtual currency – e.g. Regulatory issues

2. Which countries have official virtual currency – e.g. Petro of Venezuela

e-RMB

• It will be the electronic form of the renminbi, with a value equivalent to the paper notes and coins in circulation.
• The People’s Bank of China, the country’s central bank, will be the sole issuer of the digital yuan, initially offering the digital money to commercial banks and other operators.
• It will be launched in major cities of Shenzhen, Suzhou and Chengdu, as well as the Xiong’an New Area.
• It aims to change the financial system in big ways — by cutting costs and making transactions easier, more convenient and more transparent.
• The public would be able to convert money in their bank accounts to the digital version and make deposits via electronic wallets.

Back2Basics: Cryptocurrency

• A Cryptocurrency is an internet-based medium of exchange which uses cryptographical functions to conduct financial transactions.
• It leverages blockchain technology to gain decentralization, transparency, and immutability.
• The most important feature of a cryptocurrency is that it is not controlled by any central authority: the decentralized nature of the blockchain makes cryptocurrencies theoretically immune to the old ways of government control and interference.
• It can be sent directly between two parties via the use of private and public keys.
• Unlike decentralized cryptocurrencies, such as bitcoin, that allow users to transfer value with no central authority or third party involved, the government-backed digital currency is preferred.

What are Blockchains?

• Blockchain, sometimes referred to as Distributed Ledger Technology (DLT), makes the history of any digital asset unalterable and transparent through the use of decentralization and cryptographic hashing.
• Blockchain consists of three important concepts: blocks, nodes and miners.
• Nodes can be any kind of electronic device that maintains copies of the blockchain and keeps the network functioning.
• Miners create new blocks on the chain through a process called mining.

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