What is cryptocurrency?
Crypto is a digital or virtual currency, sometimes referred to as a token, which can be exchanged for goods and services. In fact, crypto is not a currency – this is a misnomer – it is part of an asset class. Currency, gold, oil and stocks are the main asset classes. After the 2008 recession, investors lost confidence in these assets. Thus, crypto has come into the limelight and become a strong asset class. Crypto works using a technology called blockchain, which is decentralized technology.
What are the types of
Bitcoin was the first crypto currency. It has reached sky-high value with increasing demand and has led to other alternative currencies called altcoins. Bitcoin was launched by Satoshi Nakamoto in 2009. Altcoins are Litecoin, Peercoin, Cardana, Ethereum, Namecoin. The total value of these currencies is approximately $ 1.5 trillion. A great chaos is emerging over private and public cryptocurrencies. Private crypto uses several crypto metrics and symbols that pave the way for the concealment of transactions and other details, while in the case of public crypto there isn’t such a level of privacy. Some private coins are Delta, Ucoin, Monero, etc.
How it works?
It works through digital medium, encryption and a decentralized process (keystroke process at each level). Like the US dollar and the euro, there is no central authority that manages and administers the value of cryptocurrencies, so users have become the sole determinants of value.
Normal currencies have legal backing, but in the case of crypto there is no such backing – it’s based on crypto evidence instead of trust in authority. Records and transactions are kept in the form of programs called blockchain.
Advantages and disadvantages
Crypto isn’t accepted everywhere, which is its biggest flaw. Outside the jurisdiction of a banking authority, cryptography facilitates money laundering, terrorist financing, etc. However, it is a cheaper and more secure method of payment. Between two parties, funds can be transferred easily without the need for a debit card / credit card / banking system. Since it is a decentralized currency, anyone can mint it themselves. The important aspect is that it keeps track of every step of the transaction, which is not possible in the normal financial system. It is immune to inflation. So, it has a lot of advantages, but regulation and competence are essential to make things run smoothly.
Amid growing concerns about financial stability, the center will pass the Cryptocurrency and Official Digital Currency Regulation Bill 2021, which will ban all private crypto currencies. Notably, cryptocurrency has gained momentum over the years, attracting Indian investors. Recently, Prime Minister Narendra Modi said that all democratic countries must work together on crypto and make sure it does not end up in the wrong hands. Several countries have banned cryptography altogether, some partially. El Salvador became the first country to legalize Bitcoin.
Actions to be taken
Digital awareness is essential so as not to let people fall into the trap of fraudsters. Before investing, the investor should know all the key aspects of crypto exchanges and be prepared to deal with drastic fluctuations in the market. There should be regulations that will bring transparency, accountability, checks and balances. Digital infrastructure needs to be strengthened to an extent that ensures surveillance, minimizes fraud and protects investors. The regulations will give the government the ability to obtain crypto tax returns, which in turn will boost the economy.