Governments are rapidly adopting their digital currencies as a means to suppress the growing acceptance of cryptocurrency against fiat money and its effect on the financial asset class.
Nigeria has proposed the launching of her own Central Bank Digital Currency which was called the “eNaira” but it is important to understand that while every cryptocurrency is a digital currency, not every digital currency is a cryptocurrency.
This article has highlighted the major differences between government digital currencies like the eNaira and cryptocurrencies like bitcoin.
What is eNaira?
eNaira is a prospective digital currency to be issued by the Nigerian government with the same value as physical naira notes. It is to be bought by the general public through financial institutions or intermediaries and transferred into e-wallets maintained by customers. It is comparable to the Swedish e-krona.
What is a Cryptocurrency?
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it almost impossible to forge. Cryptocurrencies are decentralized networks based on blockchain technology( a distributed record enforced by a network of computers). The distinct feature of cryptocurrencies is that they’re not issued by any central government or bank which makes it impossible for governments to control their maintenance. Examples are bitcoin and ethereum.
How eNaira Is Different From Cryptocurrency.
1) Decentralised currency vs Centralised currency.
Cryptocurrencies are decentralized finance instruments, unlike eNaira. Crypto uses software written (smart contracts) on blockchain technology to offer financial assets without the authorization of a country’s central bank.
In a decentralized setting, anyone can access non-fiat currency like Bitcoin without a bank account, proof of address, or government-issued ID, however, eNaira demands these requirements because it is controlled by a government(centralized) monetary authority.
2) High risk (high yields) vs No risk (no yields)
In every enterprise, the highest yields are obtained from the highest risk, and this is a feature of cryptocurrencies. They are reasonably rewarding, but very volatile due to manipulation by users.
Cryptocurrencies are risky because of their decentralized nature, making it impossible to be regulated but centralized digital currencies like eNaira are associated with no risk due to their central system that tracks the usage of eNaira by the holders, hence, no profit for holding it.
3) Non-profitable asset vs profitable and investable asset
The eNaira is a non-interest asset, meaning that It yields no profit for holders, it Is just a digital payment method. So eNaira is like another naira in your savings account, just that this time, it is kept in the digital space. It is not an investable asset like bitcoin which offers profits, hence, holding eNaira does not guarantee interests on the asset like cryptocurrencies which yield interest for the volatility of the asset.