Cryptocurrency

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