A cryptocurrency or crypto, is a virtual currency secured by cryptography.
It is
designed to work as a medium of exchange, where individual ownership records are
stored in a computerised database.
The defining trait of a cryptocurrency is that they are not issued by the
government agency of any country making them immune against any interference and
manipulation from them.
Latest Developments regarding Cryptocurrency in India – The Cryptocurrency and
Regulation of Official Digital Currency Bill 2021 is likely to be introduced in the
winter session of the Parliament. It is a bill that would regulate Cryptocurrency
in India. On December 7 2021, Finance minister Nirmala Sitharaman asserted that the
the proposed Central Bank Digital Currency will not boost cryptocurrency in India.
This article will further discuss the details of cryptocurrency within the context
of the Civil Services Examination.
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Definition of Cryptocurrency
In simplistic terms, Cryptocurrency is a digitised asset spread through multiple
computers in a shared network. The decentralised nature of this network shields
them from any control from government regulatory bodies.
The term “cryptocurrency in itself is derived from the encryption techniques used
to secure the network.
As per computer experts, any system that falls under the category of cryptocurrency
must meet the following requirements.:
Absence of any centralised authority and is maintained through distributed networks
The system maintains records of cryptocurrency units and who owns them
The system decides whether new units can be created and in case it does, decided
the origin and the ownership terms
Ownership of cryptocurrency units can be proved exclusively cryptographically.
The system allows transactions to be performed in which ownership of the
cryptographic units is changed.
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Types of Cryptocurrency
The first type of crypto currency was Bitcoin, which to this day remains the most-
used, valuable and popular. Along with Bitcoin, other alternative cryptocurrencies
with varying degrees of functions and specifications have been created. Some are
iterations of bitcoin while others have been created from the ground up
Bitcoin was launched in 2009 by an individual or group known by the pseudonym
“Satoshi Nakamoto. As of March 2021, there were over 18.6 million bitcoins in
circulation with a total market cap of around $927 billion.
The competing cryptocurrencies that were created as a result of Bitcoin’s success
are known as altcoins. Some of the well known altcoins are as follows:
Litecoin
Peercoin
Namecoin
Ethereum
Cardana
Today, the aggregate value of all the cryptocurrencies in existence is around $1.5
trillion—Bitcoin currently represents more than 60% of the total value.3.
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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.
Cryptocurrency-
Cryptocurrencies have the following disadvantages.
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.
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Frequently Asked Questions Related to the Crypto Currencies
How does a Cryptocurrency work?
A cryptocurrency (or “crypto”) is a digital currency that can be used to buy goods
and services, but uses an online ledger with strong cryptography to secure online
transactions. Much of the interest in these unregulated currencies is to trade for
profit, with speculators at times driving prices skyward.
How is money made from cryptocurrency?
The most common way of earning money from cryptocurrencies is buying coins such as
Bitcoin, Litecoin, Ethereum, Ripple, and more and wait until their value rises.
Once their market prices rise, they sell at a profit.
What is the main appeal of a crypto currency technology?
Central to the appeal and functionality of Bitcoin and other cryptocurrencies is
blockchain technology, which is used to keep an online ledger of all the
transactions that have ever been conducted, thus providing a data structure for
this ledger that is quite secure and is shared and agreed upon by the entire
network of an individual node, or computer maintaining a copy of the ledger.
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