Thursday, Jul 07, 2022
Outlook Money

What Does Digital Currency Anonymity Feature For Low-Value Transactions Mean?

It is possible to have anonymity in digital currency transactions such as those in cryptocurrencies. The Reserve Bank of India may allow such a feature for low-value transactions

The Reserve Bank of India may enable anonymity for low-value digital currency transactions.

The Reserve Bank of India (RBI) may allow an anonymity feature for low-value transactions in digital currencies. Records of higher value transactions, however, will be retained in the ledger, which means they will be traceable.  

Speaking at an event of Indian Council for Research on International Economic Relations (Icrier) last week, RBI deputy governor T. Rabi Sankar had said that the degree of anonymity may be the same as the levels prevailing for cash. “Which means that there is anonymity for low-value transactions, and beyond a threshold, there need not be any anonymity,” he said.  

At present, most cash transactions above Rs 50,000—such as bank deposit—need PAN disclosure. 

It is at present not clear how the level of anonymity will be implemented. It may be done using technology, “by killing transactions”, said Sankar, or via legal methods that restrict access to the central bank. This remains to be seen. 

What Is the Role Of Anonymity Feature In Digital Currency?  

Sathvik Vishwanath, CEO of crypto exchange Unocoin, says, “Some of the advanced blockchains like Zcash and Monero support features where the sender address and amount being sent can be masked using advanced encryption technology. The masked information can only be decrypted by the sender and receiver if there needs to be a proof of the transaction being done. This makes the transactions more anonymous, even though, generally, blockchain is supposed to work through a trail of transactions available publicly.”  

How Does The Anonymity Feature Work?  

While converting their central bank digital currency (CBDC) units back into cash by commencing a transaction through their respective intermediaries, users could use this anonymity feature. “When an intermediary receives this type of request, it takes the given number of CBDC units from its client’s wallet and marks them as spent. The intermediary then submits a request to the central bank to reclaim funds from the RTGS (Real Time Gross Settlement) and adjusts the balance in the user’s private money account,” says Alok Kumar, founder and CEO of StockDaddy, an investment learning digital platform. 

While presenting Budget 2022, Finance Minister Nirmala Sitharaman had said that Digital Rupee, India's CBDC, will be introduced using blockchain and other technologies. She had added that the RBI will issue these in 2022-23.