A new bill listed for introduction in Parliament seeks to bar all private cryptocurrencies in India- Regulation of Official Digital Currencies Bill,2021
What Is a Cryptocurrency?
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly 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.
- A cryptocurrency is a new form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities.
- The word “cryptocurrency” is derived from the encryption techniques which are used to secure the network.
- Blockchains, which are organizational methods for ensuring the integrity of transactional data, is an essential component of many cryptocurrencies.
- Cryptocurrencies face criticism for a number of reasons, including their use for illegal activities, exchange rate volatility, and vulnerabilities of the infrastructure underlying them. However, they also have been praised for their portability, divisibility, inflation resistance, and transparency.
Blockchain Technology:
- Blockchain is a specific type of database.Blockchain is a technological system that is used for maintaining records in a manner that they cannot be easily tampered with.
- It differs from a typical database in the way it stores information; blockchains store data in blocks that are then chained together.
- As new data comes in it is entered into a fresh block. Once the block is filled with data it is chained onto the previous block, which makes the data chained together in chronological order.
- Different types of information can be stored on a blockchain but the most common use so far has been as a ledger for transactions.
- In Bitcoin’s case, blockchain is used in a decentralized way so that no single person or group has control—rather, all users collectively retain control.
- Decentralized blockchains are immutable, which means that the data entered is irreversible. For Bitcoin, this means that transactions are permanently recorded and viewable to anyone.
- The system can be applied to any type of record like educational certificates, land, or as in case of cryptocurrency, money. Governments globally have taken a positive view of blockchain and a negative view of cryptocurrency. This also appears to be the view taken in the crypto bill to be tabled in the Parliament.But,experts argue that the two are essentially inseparable.
Fiat Money Vs Crypto:
Traditional currency is maintained in paper or metal form, such as notes and coins, or in electronic form in account entries made by banks. Cryptocurrency is also a form of electronic money. The difference is that the record of cryptocurrency is maintained simultaneously by thousands of computers instead of a centralized entity such as a bank. Thus, the record of cryptocurrency can’t be tampered with by any person or authority. Cryptocurrencies such as bitcoin also tend to have limited supply. This has raised their price in the face of large money printing by central banks around the world following the covid-19 pandemic.
Does India consider crypto as a legitimate currency?
In 2018, the Reserve Bank of India banned banks from processing payments linked to cryptocurrency. This ban was overturned by the Supreme Court in March 2020 as violative of the freedom of business and profession under Article 19(1)(g) of the Constitution.
The bill listed by the government, for introduction in the Parliament, seeks to prohibit all private cryptocurrencies and lay the groundwork for an official digital currency. Such official currencies are being contemplated by several central banks around the world, including China. Cryptocurrency professionals have argued that cryptocurrencies such as bitcoin and ether operate on public ledgers and hence cannot be called ‘private’ cryptocurrencies.