Reliability of Cryptocurrencies and the Central Bank Digital Currency Architecture

Abstract

Any technological innovation is as reliable as the technology itself. The block chain technology, which is the basis of cryptocurrency, runs on a decentralised distributed ledger system which technically promises immunity from any government interference. The popularity of this notion and its variations have forced governments to think about a central bank digital currency. This chapter has been written with the objective of identifying whether lesser reliability of cryptocurrencies can be overcome by central bank digital currencies and issues involved with anonymity. While cryptocurrency ensures no counterfeiting, the feature of anonymity still carries the risk of being used for illegal activities. However, it is now perceived as the future of money. Cryptocurrencies do not create any financial liability but have been adopted as a store of value and medium of exchange. They are also used for micro-payments and decentralised applications. All these issues require a critical assessment of the reliability of cryptocurrencies as against the digital currency backed by central banks.