Fencing against Cryptocurrency

Stability of the financial sector can be potentially threatened if the private parties are allowed to toy with currencies – this is the view of RBI as well as the Central Govt as per the report published in FE on Mar 4, 2021. Let us look into the nature and working of private cryptocurrencies that have alerted government to such an extent that it thinks to introduce a bill against them.

The source code of cryptocurrencies specifies how many units can ever exist and this limitation feature makes it more and more valuable with every addition in the currency. So it has an in-built deflationary tendency vis-à-vis the government administered currencies of the world that are typically inflationary.

Bitcoin introduced in 2009 by Satoshi Nakamoto (a pseudonym) is the most popular cryptocurrency with a cap of maximum number being 21 million coins. He was also the first person to mine a block. Once miners (computer-tech persons) are able to complete the verification of 1 MB (megabyte) worth of bitcoin transactions they are treated as have mined a block and rewarded with a certain number of bitcoins as fixed by the cryptocurrency’s internal regulation. The miners on their success also get fees that are pre-loaded by buyers of the transactions so that their work of verification could be done on priority basis. A miner is allowed to prioritize fee-loaded transactions over the others. A blockchain is the record of all such transactions in bitcoins from beginning of it till date.

Bitcoin, Litecoin, Ethereum, Ripple are some of the popular cryptocurrencies worldwide whereas in India Bitbns, CoinSwitch, CoinDCX, BuyUCoin, Zebpay are often heard ones.

Cryptocurrencies appear to have come in existence as an informal means of money exchange or might be a product of gaming activity which because of its high level of digital security mechanism and perhaps having been able to keep itself immune to all kinds of government regulations by virtue of their untraceability gained momentum in a short span of time.

The demerit with these currencies is that they can’t be restored if one forgets the private key or codes of their coins. Black marketing is also possible through them. The fact that from origin to the end the cryptocurrencies are able to avoid regulation and taxation have made the governments alert in many counties. Their rapid spread and usage can be a threat to a country’s monetary system and so fencing measures are on.

(Author – Hemant K Das)

Disclaimer: The views expressed are personal and this article is written and published only for academic purpose. The readers are advised to follow all government rules and regulations before thinking for any transactions.