Syllabus: General studies paper 3(IT & computer)
- Recently, Vitalik buterin, the founder of ethereum donated cryptocurrency worth $1 bn for covid19 relief in india.
- Bitcoin, the first cryptocurrency, was created in 2008 by satoshi nakamoto and with the growth of the internet; many more crypto currencies have been introduced in the world such as ethereum , doge coin etc. It has spread overwhelmingly across the world. As of today market share has touched $2.5 tn in may, 2020.
Technology used in cryptocurrency:
- The blockchain is a network where people share their extra space and computational powers in computers and create a global supercomputer that is accessible to everyone. It performs functions like verifications of transactions and contracts, and updating and maintenance of such records in tamper proof ledgers.
- The participants known as validators get rewarded for their efforts in tokens or coins.
Advantages of cryptocurrency:
- Funds transfer between two parties will be easy without the need of a third party like credit/debit cards or banks.
- It is a cheaper alternative compared to other online transactions.
- Payments are safe and secured and offer an unprecedented level of anonymity
- Modern cryptocurrency systems come with a user “wallet” or account address which is accessible only by a public key and pirate key. The private key is only known to the owner of the wallet.
- Funds transfers are completed with minimal processing fees.
Disadvantages of cryptocurrency:
- The almost hidden nature of cryptocurrency transactions makes them easy to be the focus of illegal activities such as money laundering, tax-evasion and possibly even terror-financing
- Payments are not irreversible
- Cryptocurrencies are not accepted everywhere and have limited value elsewhere
- There is concern that cryptocurrencies like bitcoin are not rooted in any material goods. Some research, however, has identified that the cost of producing a bitcoin, which requires an increasingly large amount of energy, is directly related to its market price.
Regulations in india:
In 2018, the rbi issued a circular preventing all banks from dealing in cryptocurrencies. This circular was declared unconstitutional by the supreme court in may 2020.
- Recently, the government has announced to introduce a bill; cryptocurrency and regulation of official digital currency bill, 2021, to create a sovereign digital currency and simultaneously ban all private cryptocurrencies.
- In india, the funds that have gone into the indian blockchain start-ups account for less than 0.2% of the amount raised by the sector globally.
- The current approach towards cryptocurrencies makes it near-impossible for blockchain entrepreneurs and investors to acquire much economic benefit.
- Regulation is the solution: regulation is needed to prevent serious problems, to ensure that cryptocurrencies are not misused.
- strong kyc norms: instead of a complete prohibition on cryptocurrencies, the government shall rather regulate the trading of cryptocurrencies by including stringent kyc norms.
- Ensuring transparency: record keeping, inspections, independent audits, investor grievance redressal and dispute resolution may also be considered to address concerns .
Question- write a short note on block chain technology, also describe the potential benefits and linked threats with cryptocurrencies?