Future of digital currency – Times of India

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The author is the Founder, Kunji.
With UPI reaching an all-time high in transactions and volumes, the next big question is- what comes next? Thousands of retailers, consumers, and business owners now have access to this technology across international borders in nations like Nepal, Malaysia, and many others. While some regions are already using QR scans for the masses, others are using the benefits for remittances to reduce costs and speed up transactions. While tourists mostly use these systems, India must onboard institutions and governments around the globe to become a global leader. 
Although networks for digital currencies like Bitcoin and Ethereum are currently widely used in many nations worldwide, the competition between technologies like UPI, VISA, SWIFT, and blockchain will be fierce. Even though each serves a different purpose, blockchains offer well-rounded solutions to most issues.
The present scenario
A key feature of blockchain is its use in cryptocurrencies, making it highly desirable, especially in downturns for stablecoins. However, governments worldwide are now highly vigilant of failing digital currencies and do not wish to lose control over their reserve currency to privately run stablecoins. While many private issuers of stablecoins work independently, some are focused on collaborating with governments from the beginning. Hence, the priority for the interest in different currencies across shareholders is quite different. While governments love the control that CBDCs bring, Private institutions and retail have a higher preference for private stablecoins. With proper audits and checks, private stablecoins are already an amazing solution for global trade, but CBDC’s higher backing from regulators and governments makes it more attractive for a few specific use cases and reasons.
These preferences aren’t set in stone but are based on what each group of people has said and done in response to technology and societal change. Aside from the convenience and opportunities digital currencies provide, cryptocurrencies (such as Bitcoin and Ethereum) offer financial freedom from government censorship. Similar phenomena have been seen in countries like Canada and centralized regimes such as China.
When referring to India, the market for cryptocurrencies is largely driven by the value accrual/investment perspective, even though the demand for digital currencies is considerable. But unlike digital currencies, cryptocurrency tokens represent ownership of government assets in digital form. On the other hand, crypto tokens represent a small portion of the network-based economy and are highly akin to shares of high-growth companies.
Future possibilities of digital currency
Currently, a single asset holds less value than a network, and the number of users and institutions determines the value of any asset or network. The rupee, digital rupee, e-rupee, and CBDCs (Central Bank Digital Currency) solve similar transactions, but the ultimate custody of assets and the network differ. 
In India, CBDCs are primarily piloted for institutional purposes and wholesale settlements, but the retail version surpassing UPI’s reach can bring immense strength to the CBDC. This holds for any CBDC in any country. China, being one of the earliest adopters, has already started seeing the benefits of its CBDC and being the dominant mode of value exchange in parts of Africa and its adjoining regions too. While CBDCs and networks like bitcoin are vying for SWIFT users, UPI has begun a war with VISA and PayPal for market share in global transactions.
The MSMEs and retail sectors are now being aided the most by UPI, but the same might be offered to the top institutions and governments for significant payments. For that purpose, CBDCs check the boxes of compliance, backing, regulation, and reconciliations.
Problems and developments
A lot of value has been destroyed in the crypto market due to the collapse of Luna Foundation UST stablecoin earlier this year. Some structural vulnerabilities were even exposed in different stablecoin designs. Since then, governments and regulators worldwide have become extremely cautious about the stablecoin industry. Given that stablecoins based on the US dollar are the most common stablecoins in use, the USA is where regulation and inspection are most intense. While the EU, India, Japan and Singapore are now testing their versions of the same, China has already launched its version and has a clear lead in the currency dominance race. 
Countries like UK and Singapore (known for their financial prowess) are taking a nimble yet bold approach to pilot different strategies for their stablecoin and DeFi plans. Although India hasn’t decided on its final position or policy on digital currencies, many pilot projects have finally been implemented to take advantage of the digital economy’s infrastructure. While tech and interoperability are a big aspect, the value of exports and services provided by a country will continue to play a major role.
Collaborations with firms like polygon have been fruitful for governments in certain use cases. The same firm also demonstrated real-time NFT(non-fungible token) purchasing with Mastercard. Such high composability is one of the big USPs of blockchain technology. Additionally, this does benefit the nation’s population too. The Indian rap and music scene benefits directly from using INR onramps to purchase NFTs. 
Illustrating once more how receptive the younger generation is to digital life, assets, and currencies- considering that the average age of cryptocurrency users in India is 24, it shows a high level of acceptance on the younger end of the spectrum.
The road ahead
The current state of digital currencies provides many opportunities for players in the infrastructure layer to come and gain huge market share. Still, collaboration and compliance with regulators will be key to the long-term success of the industry and economy.
What more can be done?
By employing blockchain and related technology, private businesses and governments can cut the cost of their overall money operations across public and private channels by 4-5 times. This, in turn, can create more value for the nation.
While UPIs tech originates in India, a lot of competition globally is booming for CBDCs. In this case, the real competition is to establish and spread the dominance of the nation’s CBDC or digital currency across multiple geographies. Here, the first step is to make it as ubiquitous as possible. Though savvy consumers have already adopted digital currencies due to their attractive economic design and open nature, time will tell how they respond to a more regulated version of the same.  
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Views expressed above are the author’s own.
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