INDEX
REFERENCE WITH UPSC-CSE SYLLABUS
- WHY IN NEWS
- ABOUT
- TIMELINE OF CRYPTOCURRENCY IN INDIA
- ARGUMENT IN FAVOUR
- ARGUMENT AGAINST
- CHALLENGES
- CONCLUSION
EXPECTED PRELIMS QUESTIONS
EXPECTED MAINS QUESTIONS
REFERENCE WITH UPSC-CSE SYLLABUS
- General Studies-III.
- Science and Technology- Developments and their Applications and Effects in Everyday Life.
WHY IN NEWS
- The Supreme Court of India has recently lifted the ban on cryptocurrencies imposed by the Reserve Bank of India.
ABOUT
- A virtual currency secured by cryptography is a Cryptocurrency or Crypto.
- Encryption techniques are used to secure the network.
- Blockchain is a system of tapeing data in a way that makes it difficult or impossible to change, hack, or cheat the system.
- In simple words blockchain is a simple decentralized digital public ledger (a book or other collection of accounts).
- It stores transaction record.
- Individual ownership records are stored in a computerized database and it is designed to work as a medium of exchange.
- They are immune against any interference and manipulation as they are not issued by the government agency of any country.
- Blockchain technology is used in cryptocurrencies work which is spread across many computers that manage and records transactions.
TIMELINE OF CRYPTOCURRENCY IN INDIA
- The government does not consider cryptocurrencies as legal tender and will take all measures to eliminate their use in financing illegitimate activities or as a part of the payment system, the Finance Minister announced that In the 2018-19 budget speech.
- Entities regulated by RBI should not deal in virtual currencies or provide services for facilitating any person or entity in dealing with or settling virtual currencies in April 2018, Reserve Bank of India (RBI) notified.
- The ban on the trading of virtual currencies in India, which was imposed by the RBI earlier was struck down by the Supreme Court in May 2020.
- Cryptocurrencies are like commodities and hence they can not be banned the court said.
- Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, to create a sovereign digital currency and simultaneously ban all private cryptocurrencies the government has announced to introduce a bill about it.
- But the government continues discussions with stakeholders so it was held up.
ARGUMENT IN FAVOUR
- NO third party is needed, funds transfer between two parties will be easy.
- Minimal processing fees for funds transfer.
- As peer to peer transaction so corruption is limited.
- Cheaper alternative as compares to other transaction systems.
- Safe and secure payment.
ARGUMENT AGAINST
- Money laundering, tax evasion, and possibly even terror financing are at their very high.
- Cyber Crime is enabled more.
- Some says anarchy will be encouraged.
- Payments are not irreversible as no resolution mechanism is available.
- It has limited value and is not accepted everywhere.
- Power consumption is high in mining cryptocurrency.
CHALLENGES
- Not legal tender as no sovereign guarantee so poses risks to consumers.
- If the user loses their private key they lose access to their cryptocurrency.
- There are high Malware threats.
- Money laundering can be at its peak.
- Regulatory bypass can be used for the cyber-attack.
CONCLUSION
- To ensure that cryptocurrencies are not misused, we need proper regulation but regulation has to be transparent to protect from market volatility and possible scams.
- Policymaking is key to accept the change and move on with the technological change which the new century poses in front of us.
- The cryptocurrency which is a part of the Fourth Industrial Revolution and is going to play a major role in advancement in human capital development in India.
EXPECTED PRELIMS QUESTIONS
Q1. Consider the following statement regarding cryptocurrency
-
- A system of tapeing data in a way that makes it difficult or impossible to change, hack, or cheat the system is call Block chain
-
- Individual ownership records are stored in a computerized database and it is designed to work as a medium of exchange.
Which of the following statement is correct?
(1) a only
(2) b only
(3) Both a and b
(4) Neither a nor b
SOLUTION
STATEMENT A is correct because a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system is call Blockchain
STATEMENT B is correct because Individual ownership records are stored in a computerized database and it is designed to work as a medium of exchange.
Q2. Consider the following statement regarding cryptocurrency
(a) A virtual currency secured by cryptography is a cryptocurrency or crypto.
(b) Encryption techniques are used to secure the network.
Which of the following statement is incorrect?
(1) a only
(2) b only
(3) Both a and b
(4) Neither a nor b
SOLUTION
STATEMENT A is correct because A virtual currency secured by cryptography is a cryptocurrency or crypto.
STATEMENT B is correct because Encryption techniques are used to secure the network.
Q3. Consider the following statement regarding cryptocurrency
(a) The ban on the trading of virtual currencies in India, which was imposed by the RBI earlier was struck down by the Supreme Court.
(b) Blockchain is a centralized digital platform.
Which of the following statement is incorrect?
(1) a only
(2) b only
(3) Both a and b
(4) Neither a nor b
SOLUTION
STATEMENT A is correct because the ban on the trading of virtual currencies in India, which was imposed by the RBI earlier was struck down by the Supreme Court
STATEMENT B is incorrect because blockchain is a decentralized digital public ledger(a book or other collection of accounts).
EXPECTED MAINS QUESTIONS
Q. The ban on the trading of virtual currencies in India, which was imposed by the RBI earlier was struck down by the Supreme Court. Critically examine
Sources used:
The Hindu,The Indian Express, British Broadcasting Corporation News, Press Trust of India, Business Standard, The Economic Times