What is a “digital dollar”? How is it different from existing money that is kept in banks and spent using credit cards/wire transfers?

Question

I have been hearing a lot of buzz about the government introducing a “digital dollar”. But isn’t most money already digital? What would be the big difference in this system?

In: 378

Answer 1

You are correct that most money is now digital. In laymen’s terms, the main point of difference is who has the authority to change the code. This is not really the difference between governmental digital dollars and digital dollars in the bank that still use the government’s currency, but rather the difference between both of those and decentralised blockchain based cryptocurrencies.

In the case of the former 2, both have centralised ‘access points’; for example, a bank can go in its code and say, change your bank account from $50 to $40 if you buy a $10 meal. This may be a valid transaction, and you may be happy with it. However, there is one centralised point of access to change that code, and this enables fraud, theft, or increasing the money supply in the case of central banks (or more) at the whim of one or few central powers.

In the case of decentralised cryptocurrencies, each transaction is verified by a cryptographic system, and then historically imprinted/verified on the blockchain, which every single mining device runs the code for. Basically instead of one central server for a bank for example, the ‘server’ is decentralised across all devices that run to operate the network. As a result, that money is much harder to corrupt as it requires corrupting a majority of devices that operate that network before a block is mined (eternalised). This skips over a lot of course, but I hope it’s digestible.

Therefore, you are correct to say that a governmental digital dollar might not be very different from modern money, as it still has a central power which has access to change its properties like its scarcity (and therefore value), etc. However, it seems that many governments have been hopping on the trend of ‘digital money’, and are likely enjoying the fact that most people aren’t too well versed on this space (I barely know anything IMO, just the bare basics) as it is incredibly complex and has political, economic, and tbh pretty universal implications, and requires some understanding of the philosophy of money.

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tldr: digital governmental money isn’t too different from modern money. Many cryptocurrencies (that strive for decentralisation) however are different in the sense that they are much more difficult to infiltrate.