PM Modi in his Sydney dialogue held in November,2021 said that all democratic countries should come and work together on cryptocurrency. He also chaired a meeting on cryptocurrency with high officials and market experts and said, “Youth must not be misled”. Government also acknowledged that this over-promising and non-transparent advertisement of various private cryptocurrencies should be under watch.
What is a cryptocurrency?
Cryptocurrency is a virtual currency or visual digital currency. Crypto is formulated to work as a medium of exchange, where individual ownership records are stored in a computerized database.
Crypto is a kind of fiat money. A fiat money is the money, which has no legal backing, I.e. It's not been accepted as a legal tender anywhere in the world. For example, Gold or silver, they have some values but they are not currencies.
Cryptocurrency is created from code. It is monitored by a peer-to-peer protocol. It is basically an encrypted string or a hash, encoded to signify one unit of currency.
When Bitcoin was launched in 2009 by an anonymous person called Satoshi Nakamoto, it had the value of 0.008$ and now in Feb,2022 one bitcoin costs $38,722. A cryptocurrency is not unlimited. Bitcoin’s market cap is estimated to be $127,331,758,431.
How does Cryptocurrency work?
In simple terms, usually people buy a coin such as bitcoin, Litecoin etc. , they hold it and when the value surges up, they sell it and make profit. Transaction is done as per blockchain technology, so it is irreversible, safe, secure and identity is also hidden here.
The blockchain is a decentralized ledger of all transactions across a peer-to-peer network. Using this technology, participants can confirm transactions without the need for a central certifying authority.
Someone requests a transaction, the requested transaction is broadcast to a P2P network consisting of computers, known as nodes. Then the network of nodes validates the transaction and the user's status using a known algorithm. Then a verified transaction can involve cryptocurrency, contracts, records, or other information. Once verified, the transaction is combined with other transactions to create a new block of data for the ledger. The new block is then added to the existing blockchain, in a way that is permanent and unalterable. The transaction is complete.
There are various apps available that help people in mining cryptocurrency on their phones. You can get the money from crypto world into your bank account.
How's the world dealing with crypto?
Cryptocurrency is acquired through mining, mining works on the basis of blockchain technology.
No intermediary is required in mining cryptocurrency, so there are no service charges. It makes it cost effective. It is cheaper than online transactions. Most importantly, anonymity is maintained, no one can know who is transferring money to whom. It also makes it mysterious. Tax evasion, terror-financing, money laundering will take advantage of this system. Basically, it might destabilize the regulated market system.
Some famous cryptocurrencies such as Bitcoin, Ethereum, Litecoin, Dogecoin, TRON, Monero and so on are being used globally by people.
Recently, China launched its own cryptocurrency called digital yuan or e-CNY used by People’s Bank of China. The USA has not developed any framework related to it. Canada became the first country to approve a Bitcoin exchange-traded fund since February 2021. El Salvador became the first country to approve bitcoin as a legal tender.
Cryptocurrency in India-
In 2018, RBI generated a circular that no banks will allow cryptocurrency. SC criticized RBI for this circular. This circular was withdrawn by the RBI. In 2019, S.C. Garg committee was set up that advised to ban cryptocurrency in any form in India.
Now, the problem is that cryptocurrencies cannot be banned completely because it is a virtual thing working worldwide. Government cannot regulate it because it is being mined worldwide. If people move to cryptocurrency, it will incur huge loss in revenues of the Government of India.
Government wanted to introduce a bill – Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. The bill has not been tabled yet. Government is in favor of banning all forms of private cryptocurrencies in India. Also, the Government must ensure strong KYC norms to regulate them.
In the budget 2022-23, Union Finance Minister Nirmala Sitaraman proposed to issue a Digital Rupee or Central Bank Digital Currency. Also, virtual assets will face a tax of 30%. This move will validate trading of private cryptocurrencies and non-fungible tokens.
Indian investors have put around 45000 crore rupees in private cryptocurrencies.
Risks associated with Cryptocurrency
They don’t hold any sovereign guarantee as our national currency holds. There is a lot of market volatility, it’s price can move up or down excessively at any time. It has no security; one cannot complain anywhere. There can be malware threats also in a computer system.