Russia is getting ready to test out the digital ruble, and it is not alone in launching a digital currency. But people who are not cryptocurrency enthusiasts want to know: What is a digital currency?
A digital version of a currency can be thought of as a third form of money: the first being cash, the second being non-cash (for instance, the money that gets direct-deposited into your bank account by your employer), and the third, for example, the digital ruble. The three types of currency are equivalent but probably difficult to understand. How is a digital ruble any different from a ruble direct-deposited by an employer?
The Russian Central Bank emphasizes that the digital ruble is not a cryptocurrency. Cryptocurrencies are decentralized (not issued by a government), and the identity of a holder is often impossible to determine unless the holder outs himself/herself. In contrast, the digital ruble will be held in electronic wallets "located" in the Central Bank.
Naturally, then, the digital ruble makes it easier for a government to track where all the money is going. Especially if people are not paying taxes on their under-the-table income (ahem). In many ways, digital currency is the opposite of cryptocurrency – though the idea and the digital infrastructure certainly came from that industry. One Russian blockchain and cryptocurrency expert says that the digital ruble will create the equivalent of the State Bank of the USSR. Another advantage of the digital ruble, according to Russian authorities, will be avoiding Western sanctions.
But this move is not limited to Russia. The United States and European Union are working on the digital dollar and euro, respectively, at the moment. China leads the pack, already using the digital yuan.
If you are thinking that cryptocurrencies are very prone to scams and hacks, and how is digital currency any different? – well, you're right. The fact is, the Russian government estimates it will need to spend R20-25 billion/$282.7 million (will those be cash or digital rubles?) to secure the system.
Many nations will have their digital currencies ready in the next 5-7 years. Russia had hoped to test the digital ruble in 2021, but with China already doing it, there is no hurry now. In fact, as Lenta.ru points out, watching other countries do it first can allow Russia to avoid all of their mistakes.
If you still do not quite understand how it will work... join the club. We guess we'll all find out soon.
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