In the News 📰
- In the upcoming Budget Session of Parliament, the Union government is set to introduce a bill banning all private cryptocurrencies such as bitcoin in India.
- The bill will also deal with the creation of a legislative framework for an official digital currency.
What is cryptocurrency ?
- A crypto currency is a digital currency that is created and managed through the use of advanced encryption techniques known as cryptography.
Benefits associated with Crypto currency
- Transactions are a lot faster and simpler and often less expensive than with fiat currency, especially in making cross-border payments.
- Cryptocurrency cannot be counterfeited and transactions cannot be reversed arbitrarily by the sender (as credit card chargebacks can) and can be tracked accurately.
- Each digital coin has been created for a specific purpose, which means there is a wide range of application options.
- Cryptocurrency transactions provides anonymity.
- Cryptocurrency is not bound by exchange rates, interest rates or transaction charges.
- Digital currency transactions take place at the same speed, regardless of where the sender and receiver are located.
- The main risks of the crypto market are related to the security issues and a high volatility of currencies.
- They lack all the attributes of a currency. They have no fixed nominal value i.e. neither act as any store of value nor they are a medium of exchange.
- The non-official virtual currencies can be used to defraud consumers, particularly unsophisticated consumers or investors.
- The Financial Action Task Force (FATF) has also observed that on account of the anonymity associated with virtual currencies/ cryptocurrencies, they are vulnerable to misuse in terrorist financing activities while also making law enforcement difficult.
- It has often been associated with illegal activities such as money laundering and the trade in illegal goods, mainly because its transactions can be carried out anonymously.
- There are around 2,116 cryptocurrencies globally with a market capitalisation of $119.46 billion. Other than bitcoin, other popular ones include ethereum, ripple and cardano.
- There is wide divergence in the treatment of virtual currency globally. For example, while Japan has recognised bitcoin as a means of payment, China has imposed a complete ban.
- However, no country treats virtual currencies as legal tender.
- The blockchain is a decentralized ledger of all transactions across a peer-to-peer network.
- Using this technology, participants can confirm transactions without a need for a central clearing authority.
- Potential applications can include fund transfers, settling trades, voting and many other issues.
- The government and the Reserve Bank of India have been consistently cautioning the public about the use of private cryptocurrencies after several people in the country started investing in them.
- A high-level inter-ministerial committee was constituted on November 2, 2017, headed by secretary, department of economic affairs Subhash Chandra Garg, to study issues related to virtual currencies and propose specific action to be taken in this matter.
- The mandate of the panel included an examination of the policy and legal framework for the regulation of virtual currencies.
Virtual and Cryptocurrencies
- There is no globally accepted definition of what exactly is virtual currency. Some agencies have called it a method of exchange of value, while others have labelled it a goods item, product or commodity.
- Satoshi Nakamoto, widely regarded as the founder of the modern virtual currency bitcoin and the underlying technology called blockchain, defined bitcoins as a new electronic cash system that’s entirely peer-to-peer, with no trusted third party.
- This essentially meant there would be no central regulator for virtual currencies as they would be placed in a globally visible ledger and all users of such virtual currencies would be able to see and keep track of the transactions taking place.
- Virtual currency is the larger umbrella term for all forms of non-fiat currency being traded online and are mostly created, distributed and accepted in local virtual networks.
- Cryptocurrencies, on the other hand, have an extra layer of security, in the form of encryption algorithms. Cryptographic methods are used to make the currency as well as the network on which they are being traded, secure.
- Most cryptocurrencies now operate on the blockchain or distributed ledger technology, which allows everyone on the network to keep track of the transactions occurring globally.
- The Panel has recently given its recommendations.
- Banning Private Cryptocurrencies:
- The committee has recommended a law banning cryptocurrencies in India and criminalising carrying on of any activities connected with them in India.
- Okays Official Digital Currency:
- The Committee has taken a lenient view on the government launching an official digital currency, asking it to keep an open mind on the matter.
- It observed that enabling provisions are available in the Reserve Bank of India Act that permit the central government to approve a central bank digital currency (CBDC) recommended by the RBI.
- Setting up a Standing Committee:
- The committee also recommended setting up a standing committee to take into account the technological developments globally and within the country and also the views of global standard setting bodies.
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