Cryptocurrency UPSC PDF For Prelims & Mains | Advantages | Disadvantages – Cryptocurrency Is A Burning Issue all Over The World . In some Countries It is Legal And In Some Countries it is Illegal . There Are So Many Crypto Currencies All Over The World. In this Post We Will Discuss Bout What Is Cryptocurrency , types Of Cryptocurrencies , Advantages And Disadvantages Of Cryptocurrencies, Indian Government And RBI Stand On It . Full Details Are provided Below.
Cryptocurrency UPSC PDF For Prelims & Mains | Advantages | Disadvantages
- What Is Cryptocurrency ?
- Types Of Cryptocurrency
- Regulation In India
- RBI Stand On Cryptocurrency In India
What Is Cryptocurrency?
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
- Cryptocurrencies are systems that allow for secure payments online which are denominated in terms of virtual “tokens,” which are represented by ledger entries internal to the system.
- “Crypto” refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.
Types of Cryptocurrency | Cryptocurrency UPSC
- The first Blockchain-based cryptocurrency was Bitcoin, which still remains the most popular and most valuable.
- Today, there are thousands of alternate cryptocurrencies with various functions and specifications. Some of these are clones or forks of Bitcoin, while others are new currencies that were built from scratch.
Bitcoin was launched in 2009 by an individual or group known by the pseudonym “Satoshi Nakamoto.
Alternative Cryptocurrency Coins (Altcoins)
Altcoins usually refer to any coins that are not Bitcoins. Bitcoin is a popular digital currency that’s produced by computational solutions to complicated math problems. It works separately from a central bank or state entity (i.e., government-backed Treasury).
Some Altcoins include:
In fact, the name “altcoin” actually means “alternative to Bitcoin.” Namecoin is considered the very first altcoin, created in 2011.
The Most Common Types of Cryptocurrency
- Bitcoin Cash
Bitcoin Cash Cryptocurrency
Advantages Of Cryptocurrency | Cryptocurrency UPSC
With the Industrialization and involvement of technology, digital currencies are gaining an upper hand over others. One such currency is bitcoins. Many of us are familiar with this well-known terminology. The only confusing thing is Cryptocurrency. What are its pros and cons? Is it worth investing in 2020?
If you have such questions, get them answered here. Below you will find the major advantages and disadvantages of Cryptocurrencies. Here Is the Full List of All Pros and Cons of Cryptocurrencies.
Advantages of Cryptocurrency :
- Protection from inflation
- Self-governed and managed
- Currency exchanges can be done easily
- Cost-effective mode of transaction
- A fast way to transfer funds
- Secure and Private
- Cryptocurrencies don’t use middlemen, so transactions are usually easier, faster and require less or no additional transaction fees.
- Each cryptocurrency transaction is a unique exchange between two parties, which protects users from issues like identity theft.
Governments manipulate prices of currencies. Their own currency as well as others’ currencies. American Financial Crisis of 2007 established that American Government cannot be trusted. Probably this was the important reason why Bit Coin was launched in the year 2008. Proponents of Cryptocurrency claim that unlike Fiat Currencies, CC cannot be manipulated by Governments.
Disadvantages Of Cryptocurrency | Cryptocurrency UPSC
- Can be used for illegal transactions
- Data losses can cause financial losses
- Decentralized but still operated by some Organization
- Some coins not available in other fiat currencies
- Adverse Effects of mining on the environment
- No refund or cancellation policy
- Susceptible to hacks
- Crypto Currency issuers claim no responsibility to stabilise the price of Cryptocurrency. Hence it is open to massive fluctuations
Future of Crypto Currencies
- Most of them will crash leaving investors with big losses.
- Then, the Regulators will come into action.
- Prosecute people, arrest & so on.
- Main sponsors would have disappeared.
- Governments can sponsor CC as their currency.
- Corporates can issue CC with full intrinsic value.
- These developments can work very well.
Is there any country which has permitted use of cryptocurrencies?
Different countries have adopted different regulatory frameworks with respect to cryptocurrencies. Some countries have permitted the use of cryptocurrencies as a payment system while there is a complete ban on cryptocurrencies in some others. Note that no country has allowed use of any virtual currency as legal tender.
|Canada||Permitted as a payment system and as a form of investment, income from it is taxed|
|Switzerland||Permitted as a payment system (including consumer to government transactions) and as a form of investment|
|Japan||Permitted and regulated as a payment system|
|China||Use of cryptocurrency is banned for all purposes|
Cryptocurrency and Regulation of Official Digital Currency Bill, 2021
With the likely scenario of India’s government banning private cryptocurrencies, the Reserve Bank of India (RBI) is planning to introduce an official digital currency for the country.
- An earlier government bill on cryptocurrency in 2019 reportedly sought to ban cryptocurrency and criminalise its possession in India. However, it was not introduced in Parliament.
- The detailed text of the bill has not been released in the public domain so far.
- The bill also says that there will be a regulation to help RBI create its own CBDC (central bank digital currency).
What were the provisions of 2019 Bill?
Definition of cryptocurrencies:
The 2019 Bill defined cryptocurrency as any information, code, number or token, generated through cryptographic means or otherwise, which has a digital representation of value and has utility in business activity, or acts as a store of value or a unit of account.
- The 2019 Bill bans the use of cryptocurrency as legal tender or currency.
- It also prohibits mining, buying, holding, selling, dealing in, issuance, disposal or use of cryptocurrency.
- Mining is an activity aimed at creating a cryptocurrency and/or validating cryptocurrency transactions between a buyer and a seller.
In particular, the use of cryptocurrency was prohibited for:
- Use as a medium of exchange, store of value or unit of account,
- Use as a payment system,
- Providing services such as registering, trading, selling or clearing of cryptocurrency to individuals,
- Trading it with other currencies,
- Issuing financial products related to it,
- Using it as a basis of credit,
- Issuing it as a means of raising funds, and
- Issuing it as a means for investment.
Why has the Committee recommended banning of cryptocurrencies?
The Committee noted various regulatory concerns around virtual currencies, and cryptocurrencies in particular. These include:
- Fluctuation in prices
- Risk to consumers
- Impact on power consumption
- Potential use for criminal activity
Cryptocurrency UPSC Questions And Answers
- What are cryptocurrencies? Discuss various concerns related to cryptocurrencies.
- What is a cryptocurrency? Discuss the feasibility of a national cryptocurrency in India
Frequently Asked Questions About Cryptocurrency
Q1 -How long does it take to mine 1 Bitcoin?
Q2 -Can Cryptocurrency be converted to cash?
Q3 – Is Crypto Real Money?
Q 4- Will Cryptocurrency replace traditional money?
Q 5- What countries have banned Cryptocurrency?
Q 6- Which country uses Bitcoin most?