Impact of bitcoin on regular currency

Rajya Sabha member K.C. Ramamurthy asked whether any assessment has been made on how cryptocurrencies like Bitcoin impacts the regular currency of the country. He also asked about the details of countries that are in favour or permitting use of cryptocurrency, the countries that are opposing and the countries that have taken the middle path. Also, whether there are any plans to bring legislation to stop use of cryptocurrency in the country?

In a written reply, Minister of State in the Finance Ministry Anurag Thakur said, “The Reports of the Financial Stability Board (FSB) on Crypto-asset Markets, October, 2018 and on Regulation, Supervision and Oversight of “Global Stablecoin” Arrangements, October, 2020 bring out the probable financial stability risks arising from the crypto-assets and stablecoins.” He further said, “It is stated in the Report of FSB on crypto-asset markets that crypto-assets lack the key attributes of sovereign currencies and do not serve as a common means of payment, a stable store of value, or a mainstream unit of account.”

On the countries adopting cryptocurrency, Thakur said they can be be categorised under the four broad categories:

1. Accommodative or liberal – like in Japan;
2. Heavily regulated like in USA,
3. Not currently regulated, like in lndia; and
4. Prohibitive, like barring financial institutions within their borders from facilitating transactions involving cryptocurrencies, like in China.

With regard to the question on the Cryptocurrency ban, Thakur said the Government would take a decision on the recommendation of the high-level Inter-Ministerial Committee and the legislative proposal, if any, would be introduced in the Parliament following due process.

A BRIGHT FUTURE

• Security

Unlike bank transactions, Crypto transactions are completely anonymous. A person can only know the addresses of crypto on which the payment has been sent and received. But to whom these addresses belong cannot be identified. This anonymity feature offers security against fraud and identity theft.

• Transaction fees

Banks do charge us a part of the money we send or receive. With cryptocurrency, middlemen like banks will be eliminated, hence there will be no loss to us in financial transactions. Also, the fee for crypto transactions is relatively low as compared to other digital transactions such as credit cards and other modes.

• No need for currency exchange

Due to dramatic rise in its popularity among the masses, it is gaining wide acceptance as a payment method. While travelling the world, there will no hurdle of exchanging our currencies with local currencies.

• A benefit to the economically weak countries

Cryptocurrency can be a good alternative for the countries which have weak economies. Because weak economy results in the fall of currency value. Then they have to pay more money to other countries for trade, services etc. But if they use cryptocurrency as an alternative currency, they can avoid this situation to some extent.

THE CHALLENGES

• Dangerous Anonymity

In public ledgers, which contain information regarding transactions, personal information is hidden. We cannot know the details of persons who did the transaction. Because of this, cryptocurrencies are being misused for illegal activates such as drug dealings etc.

• No regulatory body

There is no regulatory body, which is an advantage of cryptocurrencies because it allows decentralised transactions, but it is also a disadvantage. If you lost your virtual coins, nobody can retrieve them for you. There is no responsible authority.

• Safety of the currency

Crypto transactions are irreversible in nature. Funds sent to a wrong address cannot be traced back and results in loss of all the transferred money.  If the storage device in which crypto currencies are stored gets damaged or lost, then the lost Bitcoins cannot be recovered by any means.

• Acceptance by the people as well as the countries

With government of different countries having different attitudes towards considering crypto currency as a legal tender, people unaware of its mechanism consider it to be a risky investment. The value of cryptocurrency is highly volatile, because its value depends on its demand. Cryptocurrency has no value in itself. It’ll have value only if there is a demand for it. For example, if 1000 members want to buy bitcoins, its value increases. And at the same time if 1000 members sell their bitcoins to invest in another cryptocurrency for example Ethereum, the value of bitcoin will decrease.

Alternatives to Bitcoin

Despite its recent issues, Bitcoin’s success and growing visibility since its launch has resulted in a number of companies unveiling alternative cryptocurrencies, such as:

• Litecoin – Litecoin is regarded as Bitcoin’s leading rival at present, and it is designed for processing smaller transactions faster. It was founded in October 2011 as “a coin that is silver to Bitcoin’s gold,” according to founder Charles Lee.13 Unlike the heavy computer horsepower required for Bitcoin mining, Litecoins can be mined by a normal desktop computer. Litecoin’s maximum limit is 84 million – four times Bitcoin’s 21-million limit – and it has a transaction processing time of about 2.5 minutes, about one-fourth that of Bitcoin.14 15
• Ripple – Ripple was launched by OpenCoin, a company founded by technology entrepreneur Chris Larsen in 2012. Like Bitcoin, Ripple is both a currency and a payment system. The currency component is XRP, which has a mathematical foundation like Bitcoin. The payment mechanism enables the transfer of funds in any currency to another user on the Ripple network within seconds, in contrast to Bitcoin transactions, which can take as long as 10 minutes to confirm.16
• MintChip – Unlike most cryptocurrencies, MintChip is actually the creation of a government institution, specifically the Royal Canadian Mint. MintChip is a smartcard that holds electronic value and can transfer it securely from one chip to another. Like Bitcoin, MintChip does not need personal identification; unlike Bitcoin, it is backed by a physical currency, the Canadian dollar.17

The Future

Some of the limitations that cryptocurrencies presently face – such as the fact that one’s digital fortune can be erased by a computer crash, or that a virtual vault may be ransacked by a hacker – may be overcome in time through technological advances. What will be harder to surmount is the basic paradox that bedevils cryptocurrencies – the more popular they become, the more regulation and government scrutiny they are likely to attract, which erodes the fundamental premise for their existence.

While the number of merchants who accept cryptocurrencies has steadily increased, they are still very much in the minority. For cryptocurrencies to become more widely used, they have to first gain widespread acceptance among consumers. However, their relative complexity compared to conventional currencies will likely deter most people, except for the technologically adept.

A cryptocurrency that aspires to become part of the mainstream financial system may have to satisfy widely divergent criteria. It would need to be mathematically complex (to avoid fraud and hacker attacks) but easy for consumers to understand; decentralized but with adequate consumer safeguards and protection; and preserve user anonymity without being a conduit for tax evasion, money laundering and other nefarious activities. Since these are formidable criteria to satisfy, is it possible that the most popular cryptocurrency in a few years’ time could have attributes that fall in between heavily-regulated fiat currencies and today’s cryptocurrencies? While that possibility looks remote, there is little doubt that as the leading cryptocurrency at present, Bitcoin’s success (or lack thereof) in dealing with the challenges it faces may determine the fortunes of other cryptocurrencies in the years ahead.

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CONCLUSION

• Scope for development

Cryptocurrencies are still in the initial stages and the technology is constantly evolving. So, if cryptocurrencies are evolved in such a way that the loopholes are solved, they may compete with the formal financial institutions.

• Crypto-currency as accepted by the world

The current number of unique active users of crypto currency wallets is estimated to be between 2.9 million and 5.8 million. Vanuatu, a Pacific Island Nation, located in the South Pacific Ocean became the first nation to accept Bitcoin in Exchange for as payment for its citizenship program.

• Crypto-currency in India

On March 4, 2020, The Supreme Court of India quashed the ban levied on the trading of the cryptocurrency in India. The decision overruled the 2018’s RBI ban imposed on virtual currencies like Bitcoins. The aim of the ban was to safeguard the country’s financial system from the private virtual currencies, which are deemed illegal by the government.

• Block-chain and it’s future

Keeping in mind, the decentralized storage and security, it is possible to say without any hesitation that Block-chain technology is futuristic and revolutionary with the prowess to improve and develop new systems in various fields.

It is highly unlikely that the demand for cryptocurrency will beat the demand for standard currency, because of the high risk involved. But we can take the best thing in this innovation that every coin has unique code and all the transactions of every coin will be recorded. This is a wonderful concept to eliminate money laundering in the economy. Also, with the block-chain, it is exciting to see what it’s next big achievement could be!

Also Read:- How To Prepare For Group Discussion Tips

1. 1. 1. What Group Discussion Skills Required
      2. How to Start a GD
      3. What Skills Are Judged In GD?
      4. How to Enter a GD in the Middle of the Discussion
      5. How to prepare for Group Discussion
      6. Read Daily Current Affairs