News: The Central Government is going to table a bill in the Winter Session of the Parliament. The bill aims at regulating cryptocurrencies and banning all private cryptocurrencies. Read the news here.
Let’s Understand in Simple Language:
On 29th November 2021, the Central Government will table the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. The aim of the bill is to regulate cryptocurrency and apprehensively ban all private cryptocurrencies. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.
Though the use of Cryptocurrencies falls under the broad domain of finance, yet there has been no disclosure about the framework of the new bill by the Finance Ministry. Moreover, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is yet to be officially approved by the Cabinet, which seeks to create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India (RBI).
A high-level meeting was held between the top officials of the RBI and the Ministries of Home Affairs and Finance and was chaired by the Prime Minister himself. In the meeting, a consensus was reached to stop ‘attempts to mislead the youth through over-promising and non-transparent advertising’. Also, a decision was taken that unregulated crypto trading should not be allowed to become a promenade for terror financing and money laundering.
Since the news that the Centre is planning on bringing such a bill, crypto investors are tensed and apprehensive about the governments’ future steps. The prices of cryptocurrencies across the board fell by as much as 20% after news of the Centre’s new cryptocurrency bill hit the market on Wednesday.
What is Cryptocurrency?
Cryptocurrency is a digital currency that uses codes i.e. cryptography to make it more secure. This security makes it impossible to counterfeit or double spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
Watch this video to know cryptocurrency in detail:
What is Blockchain?
A blockchain is a distributed database that is shared among the nodes of a computer network. It stores information electronically in digital format. The blockchain system guarantees the security of a record of data and generates trust without the need for a trusted third party.
One key difference between a typical database and a blockchain is how the data is structured. A blockchain collects information together in groups, known as blocks, that hold sets of information. Blocks have certain storage capacities and, when filled, are closed and linked to the previously filled block, forming a chain of data known as the blockchain. A database usually structures its data into tables, whereas a blockchain, like its name implies, structures its data into chunks (blocks) that are strung together. This data structure inherently makes an irreversible timeline of data when implemented in a decentralized nature.
The goal of blockchain is to allow digital information to be recorded and distributed, but not edited. In this way, a blockchain is a foundation for immutable ledgers, or records of transactions that cannot be altered, deleted, or destroyed. This is why blockchains are also known as distributed ledger technology (DLT).
Watch this video to know Blockchain in detail:
Advantages and disadvantages of Cryptocurrency
Cryptocurrency has the following advantages
- Funds transfer between two parties will be easy without the need of 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 know to the owner of the wallet
- Funds transfer are completed with minimal processing fees
Cryptocurrencies have the following disadvantages.
- Questions related to the topic: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.
Questions related to the topic:
Q. What is a cryptocurrency? Discuss the feasibility of a national cryptocurrency in India. (250 words)
Q. What are cryptocurrencies? What is the risk associated with them? What is India’s position on cryptocurrencies? comment. (250 words)
Q. Consider the following statements regarding cryptocurrencies.
- Crypto Currency is an encrypted centralized digital currency.
- These currencies are regulated by central monetary authority.
Which of the statement(s) given above is/are correct?
A. 1 only
B. 2 only
C. 1 and 2 both
D. Neither 1 nor 2
Q. Which of the following is not a type of cryptocurrency?
Q. Which one is the founder or inventor of Bitcoin the famous cryptocurrency?
( A ) Satoshi Nakomoto
( B ) Peter Thiel
( C ) Warren Buffet
( D ) Bitcoin.org
Q. In which year Bitcoin was proposed/founded?
( A ) 3 January 2008
( B ) 3 January 2010
( C ) 3 January 2009
(D ) 3 January 2007
Q. Bitcoin is a _____________ currency ?
( A ) Digital Currency
( B ) Cryptocurrency
( C ) De-centralized
(D ) All of the above
Answer : D
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