What is a Central Bank Digital Currency (CBDC) and how is it different from cryptocurrency?

A Central Bank Digital Currency (CBDC) is a digital form of a country’s official currency, issued and regulated by the central bank. It is legal tender and functions like physical cash but in digital format. Unlike cryptocurrencies such as Bitcoin or Ethereum, which are decentralized and often volatile, CBDCs are centralized, stable, and backed by the government. CBDCs aim to enhance payment efficiency, reduce costs, and increase financial inclusion. In India, the Reserve Bank of India is piloting the Digital Rupee as a CBDC. Unlike crypto, CBDCs do not rely on mining or permissionless networks, making them more environmentally sustainable and secure. While both exist digitally, CBDCs are designed to complement the traditional banking system, whereas cryptocurrencies often operate independently and are seen as investment assets rather than currencies.