Explained: What are private cryptocurrencies? How they are different from public ones (2024)

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 seeks to ban all private cryptocurrencies in India and make way for an official digital currency to be issued by the Reserve Bank of India (RBI). The Bill will be introduced in the Lok Sabha in the Winter Session, which is scheduled to begin from November 29.

It will, however, “allow for certain exceptions to promote the underlying technology of cryptocurrency and its uses... It also seeks to create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India," said the Lok Sabha bulletin.

The government hasn't clarified the definition of private cryptocurrencies yet. Currently, the popular opinion is Bitcoin, Ether and several other crypto tokens based on public blockchain networks will continue to be in use.

Meanwhile, cryptocurrencies like Monero, Dash, and others that cloud the transaction information to offer privacy to users may be categorised as private tokens and hence, are likely to be banned.

Difference between private and public cryptocurrencies

The best-known cryptocurrencies like Bitcoin, Ether, Dogecoin, Shiba Inu and others are public as their transactions are completely transparent. Although these cryptocurrencies offer some degree of anonymity to users as they allow them to operate under pseudonyms, all transactions on the blockchain can be viewed by any person who has access to the said blockchain.

By design, transactions of these cryptocurrencies are linkable and traceable. Therefore, organisations dealing with sensitive information—like commercial contracts or individuals’ personal information—prefer to join a private blockchain. Private blockchains include Monero, Particl, Dash, and ZCash. These platforms allow users to transact without making the data public.

While these "private" blockchains also have public open ledgers, they allow different levels of permissions for users. Thus, the access can be restricted and transaction information can be encrypted to protect confidentiality.

How does a state-controlled cryptocurrency differ from other digital coins?

China's central bank has already rolled out its official cryptocurrency -- digital yuan -- after banning traditional cryptocurrencies such as Bitcoin and Ethereum from being traded in the country. The Bank of England, Sweden’s Riksbank, and the central bank of Uruguay are also likely to introduce public cryptocurrencies soon.

Unlike the digital yuan and other public cryptocurrencies in the offing, Bitcoin and most crypto tokens are decentralised and are fundamentally resistant to outside influence, control, and authority. While Bitcoin and other popular digital currencies are being seen as a possible replacement to fiat currency, public cryptocurrencies are more of an accessory to cash.

Probably, the biggest difference that distinguishesa state-controlled cryptocurrency fromothers is that the former has legal status. For instance, the digital yuan can be used as a payment mechanism and positioned as a legal tender. On the other hand, other cryptocurrencies do not have a centralised structure.

Related: