Balaji S. Srinivasan, in his eloquent article "Why India should buy Bitcoin", argues:
India should launch a digital rupee – and back it with digital gold.
I'm not as eloquent, but I'm going to argue that India -- and by that I mean everyone there, not necessarily limited to its government or central bank, should rather buy Bitcoin Cash.
The reasons are simple, therefore this isn't going to be a long article.
'Digital gold' is an illusion
A cryptocurrency with artificially restricted transactional capacity which derives its value only from being a strategic asset for reserve banks, can no longer fulfil the role as a money which every person can use economically. The security of the coin must be backed by proof of work, unless BTC transitions to something else, like proof of stake. Since the BTC block reward halves every four (4) years, the security of the coin will swiftly need to be backed by transaction fees, which for a reserve asset mean the transaction fees have to rise enormously. This will make it uneconomical for normal people to acquire or use as savings instrument under their own sovereign control.
We might assume the suggestion that Balaji made was for the central bank to get ahead of the game of acquiring Bitcoin for its financial security, and not to have ordinary people use Bitcoin. But then what are ordinary people supposed to use as a store of value and means of exchange?
Balaji's answer above seems to be the digital rupee, controlled by the state, that would leave the key benefits of decentralized cryptocurrencies inaccessible to 99% of the population, such as economic freedom and ability to securely store their wealth in a form that they control without third party interference. What a great loss!
The value of a currency network is related to the number of users
Whether or not Metcalfe's Law (postulating that the value increases with the square of users) is an accurate formulation or some other factor applies, no one would deny that the network effect of money is very strong and this applies to global cryptocurrencies.
This implies that a currency has to be accessible and more importantly, usable by many people. A currently that is only usable by a rich few, or by institutions such as central banks or large funds, cannot retain this network effect and value compared to currencies that are affordable for almost everyone to acquire and transact.
This means a 'digital gold' version of Bitcoin will inevitably be outcompeted by currencies which do not impose limitations of high fees, loss of privacy, introduction of trusted third parties and other frictions commonly found in financial transactions using both Bitcoin BTC and legacy fiat currencies.
No silver bullets for BTC scaling
Despite hype and attempts, layer 2 solutions that can scale Bitcoin massively and trustlessly have not been successfully constructed. Most of the existing attempts either do not scale, or re-introduce weaknesses that often break key properties of Bitcoin, such as in the case of custodial platforms ("not your keys, not your coins").
Perhaps this is the reason why Balaji proposes the use of a centralized digital currency in the form of a digital rupee CBDC. But this is not necessary. With simplified payment verification (SPV), Bitcoin can scale massively on chain, enough to let everyone on earth use it as at least for their own self-sovereign savings. Quite likely the scale for daily personal transactions by everyone is also well achievable. Technologically, that is already within reach, and technological improvements will march on while human population growth will reach a limit. The on-chain scaling model proposed by Satoshi himself proposes Bitcoin as a realistically achievable global medium of exchange for whoever wants to use it.
Bitcoin Cash is superior to BTC in the ways that matter for global use
Bitcoin Cash, as a sibling of today's BTC, continues this roadmap where its network capacity should only be restricted by technological developments in hardware and software improvements. The successes are evident in the continued growth and adoption of Bitcoin Cash in electronic commerce, for which Bitcoin was designed, and at which it excels.
Even today, a network of consumer-grade Bitcoin Cash nodes can be shown to achieve VISA-scale transaction capacities, and of course much more powerful hardware is available in almost every country around the world. Mobile communication networks have extended the reach of electronic commerce to practically the whole globe, with the last remaining vestiges soon to be much more accessible via satellite-based internet. The ground has been thoroughly prepared for Bitcoin as peer to peer electronic cash.
Bitcoin Cash experiments on test networks have already shown the viability of validating of thousands of transactions per second, and further orders of magnitude improvements are possible through known scaling techniques.
CBDCs purposely lose Bitcoin's benefits
Central bank digital currencies, like a digital pound, euro, dollar or rupee, once again sacrifice many of the advantages that Bitcoin as peer to peer electronic cash can provide.
I'll focus on the most important point: With central banks, money creation and the exercise of financial control remains in the trusted hands of a corruptible few, with foreseeable long-term consequences.
The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.
- Satoshi Nakamoto, 2009-02-11
So it boils down to this:
If you have Bitcoin Cash, you are in control of your own money, it cannot be debased by central bank or counterfeited by criminals. It is censorship resistant and allows financial privacy through pseudonymous addresses and combinatorial techniques like coin mixing and fusion. This money can be used to sell or buy over the Internet, whether locally and abroad. Wherever there is an Internet connection, you're good.
Anyone who has experienced Bitcoin in its early days, and Bitcoin Cash nowadays, knows how smooth the process can be compared to existing payment methods. There is no need for trusted third parties to "hassling you for more information" - payment is swift (!), should be as convenient as scanning a QR code or accepting a payment request via an invoice. And payment is only reversible by consent of the recipient, which can eliminate a lot of fraud.
Where public interest demands and regulation provides for it, the Bitcoin transactions of institutions can be kept transparent and accountable. This is practically impossible with the existing systems, and unlikely to change with CBDCs where privacy will likely be an afterthought, possibly even upended to apply only to the higher levels and not shield the ordinary person.
Thus, Bitcoin already makes central bank (fiat) money obsolete - whether it's digital or physical.
From a point of view of ensuring that the nation is maximally able to benefit from growth everywhere, it makes sense to let people themselves choose to hold and use the currencies they want. In fact, this is arguably everyone's human economic right, even though it is not well respected today in most countries.
A central bank digital currency, such as a digital rupee, can exist and freely compete with cryptocurrencies. Whether central banks can tolerate such a free market when it comes to currencies, remains to be seen. Bitcoin is a very new form of money and most people are not even familiar with the events that transformed Bitcoin BTC into a cryptocurrency with limited transactional growth prospects. The takeaway however, is that Bitcoin Cash is committed to keeping peer to peer electronic cash accessible to everyone.
I agree with Balaji that central banks should embrace Bitcoin rather than attempt to ban it. If anyone wishes to really benefit from a usable cryptocurrency in future, Bitcoin Cash offers that possibility and a much higher potential return on their investment.
Enjoy Bitcoin Cash, available in a free market near you.
Further reading:
Bitcoin cash is fast growing everyone should invest more on it, that might be the next bitcoin