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Cryptocurrency

  • IASbaba
  • July 19, 2022
  • 0
Science and Technology
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In News: Union Finance Minister stated that Crypto legislation can only work with global collaboration

  • She stated that a law to regulate or ban cryptocurrencies can only be effective once there’s some form of international agreement in place.
  • Finance Minister Statement in Parliament signals law on cryptocurrencies may be off the table for now.

What is Cryptocurrency?

  • Cryptocurrency, sometimes called crypto-currency or crypto, is any form of currency that exists digitally or virtually and uses cryptography to secure transactions.
  • Cryptocurrencies don’t have a central issuing or regulating authority, instead use a decentralized system to record transactions and issue new units.
  • It is supported by a decentralized peer-to-peer network called the blockchain.

Benefits of Cryptocurrency

  • Inherent security: Use of pseudonyms and ledger systems conceals the identities.
  • Low transaction cost: Very low fees and charges for transactions.
  • Lack of interference from the banking system: Outside ambit of banking systems.
  • Lower Entry Barriers: No entry barriers, unlike conventional banking systems.
  • Universal recognition: Lots of cryptocurrencies and acceptable in many nations.

Challenges

  • Security risks: Cyberattacks on wallets, exchange mechanism (Cryptojacking).
  • Shield to Crime: Used for Illicit Trading, Criminal Activities, & organised crimes.
  • Threat to the domestic currency: If a large number of investors invest in digital coins rather than domestic currency based savings like provident funds, the demand of the latter will fall.
  • Lack of Liquidity and Lower Acceptability: Outside the traditional banking systems.
  • Price Volatility: Prone to price fluctuations & waste of computing power.
  • Lack of Consumer Protection: No Dispute Settlement Mechanisms and control of Securities and Exchange Board of India (SEBI).

Source: The Hindu

Previous Year Question

Q.1) With reference to ‘Bitcoins’, sometimes seen in the news which of the following statements is/are correct (2016)

  1. Bitcoins are tracked by the Central Banks of the countries.
  2. Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address.
  3. Online payments can be sent without either side knowing the identity of the other.

Select the correct answer using the code given below:

  1. 1 and 2 only
  2. 2 and 3 only
  3. 3 only
  4. 1, 2 and 3

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