The Indian government has decided to bring a bill in the parliament that will ban most crypto-currencies in India. This ban will apply to all private crypto-currencies baring few. But it continues to allow the technologies associated with it and its use. The bill also includes the creation of an official digital currency by the Reserve Bank of India (RBI). Why so much fuss about cryptocurrency trading? Why is the Indian government so apprehensive of its use?
More than 10 crores of Indian citizens own cryptocurrency and there are almost 15 to 20 million crypto users currently in India. The research reveals that the total Indian crypto investments to this date are $10 billion that is a rise from $923 million in April 2020. RBI seems to have a lot of reservations about cryptocurrency investment and is worried about the security of the hard-earned invested money of the common people as there is hardly any control over its transactions.
What is Cryptocurrency?
The Crypto or cryptocurrency or crypto-currency is a collection of binary data designed for monetary transactions. The cryptocurrency is more of a fiat currency and is not backed by or convertible into a commodity for example gold. It works like a credit card or PayPal where you exchange digital assets for goods and services in the place of US dollars.
In simplest terms, it is a secured online payment gateway denominated in the form of virtual “tokens.” If you want to have a transaction in cryptocurrency, you will have to exchange it with a similar currency via a digital wallet known as a cryptocurrency wallet.
Cryptocurrency is an online payment system and doesn’t depend on banks for the verification of transactions. It involves a peer-to-peer system that enables a person to send and receive payments anywhere. Unlike the physical money to be carried and exchanged in day-to-day life, it exists purely in the form of digital entries to an online database describing specific transactions. When an individual makes crypto transactions, it is recorded in a public ledger and the fund gets stored in a digital wallet.
Cryptocurrency is named after encryption as it uses cryptography to verify transactions. It means an advanced coding system is involved in the storage and transmitting of cryptocurrency data between wallets and public ledgers. The aim of encryption is for delivering security and safety.
Blockchain Technology and Cryptocurrency Trading
At the center of cryptocurrency trading, there is a digital ledger technology involved describing it as a decentralized system. Blockchain is a digital public ledger or database of crypto transactions that are done worldwide. It is said that it is completely secured and impossible to hack, change or manipulate.
This decentralized ledger provides the information about the crypto transactions occurring the world over across the network of all connected computers so that it will be viewed by everyone, including crypto mining and trading. It doesn’t have a single authority. This decentralized public ledger system is used for storing information and tracking economic transactions. It’s so designed that it can record everything that goes through it including financial transactions.
Blockchain technology hides the identity of the user by secured cryptography. It is secured as nobody can access the data without the correct private key or user’s permission. The decryption requires a hard and long calculation of the cryptographic code that makes it highly secure to transact money.
Public Cryptocurrency Vs Private Cryptocurrency
Public crypto-currencies run on public blockchain platforms via publicly available verified transaction history records on the blockchain ledger. Private crypto-currencies don’t have a public ledger for the tracking of transactions. The private crypto-currency doesn’t fall under the purview of a government or central bank digital currency (CBDC).
Why the governments are wary of Cryptocurrency trading?
- The governments around the world are wary of cryptocurrency for example Bitcoin’s advance because it has the potential to overturn the current financial system and can bypass them.
- In the present format, the most popular cryptocurrency that is Bitcoin poses three challenges such as:
- It can’t be regulated.
- It can be exploited by criminals.
- It can help the users to evade capital controls.
- There is a lack of transparency in the crypto ecosystem.
Disadvantages with Cryptocurrency
The risk associated with cryptocurrency trading is comparatively high. Cryptocurrency is highly volatile and intangible. It exists on a non-regulated stock market and is not being controlled by any centralized authority.
- Scalability: The Bitcoin scalability problem could be due to its inability to handle a huge amount of transaction data in a limited time on its platform. The Bitcoin network can’t handle large transaction data. The records known as blocks in the Bitcoin blockchain have limited size and frequency.
- Cyber-security threat: As these are digital currencies, they are vulnerable to cyber-security breaches and may fall into the hands of cybercriminals or hackers. Such incidents have already happened resulting in huge losses to the crypto investors.
- Price volatility and not having enough Inherent Value: Price volatility and not having enough inherent value continue to be a problem. Then, the cryptocurrency value is also not linked directly to intangible assets and tangible assets. This makes investment highly volatile.
- No regulation: The cryptocurrency is not regulated by any central bank or financial institution. So, it becomes highly risky to invest.
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