Jaitley’s view on cryptocurrencies splits opinion

Jaitley’s view on cryptocurrencies splits opinion

Why in news?

Cryptocurrency is not legal tender in India but the government will explore its underlying technology, called blockchain, to usher in the digital economy, finance minister Arun Jaitley said on 1st Feb, 2018 while presenting Union Budget 2018-19.

Highlights:

  • The Finance Minister’s statement in his Budget speech on crypto currencies does not mean that it is illegal to hold these currencies, but only means it is illegal to transact using them in place of legal tender.
  • The Government does not consider crypto currencies legal tender or coin and will take all measures to eliminate use of these crypto assets in financing illegitimate activities or as part of the payment system.
  • The government will take measures to eliminate use of crypto-assets in financing illegitimate activities or as part of the payment system, the finance minister said.
  • Neither the government nor the Reserve Bank of India (RBI) has authorized any virtual currency as a medium of exchange till date but the momentum for such virtual currencies is catching up rapidly in India like other countries.
  • The government has recognized the viability of blockchain technology that powers cryptocurrency. Efforts should be made to bring in regulations at the earliest to achieve this aim.
  • India has always been opposed to cryptocurrency, claiming that they can be a channel for money laundering and terrorist financing. Nevertheless, according to reports, the Reserve Bank of India (RBI) has a group studying whether digital currencies backed by global central banks can be used as legal tender.
  • In India, the use of cryptocurrency is a violation of foreign-exchange rules and the income tax department has sent tax notices to thousands of people dealing in cryptocurrency after a nationwide survey showed more than $3.5 billion worth of transactions have been conducted over a 17-month period.

What are Cryptocurrency?

Cryptocurrency is a digital currency that can use as a standard currency where ever that accepts it. However it is not under the regulation of the governments or issued by the central banks. Cryptocurrency does not enjoy the same kind of stability when comparing to regular physical currencies but nowadays many people are using it for different purposes like shopping online or money transactions.

  • Bitcoin is the first cryptocurrency to come out and because of this, it has become the de-facto crypto which is just another benefit of Bitcoin.
  • Bitcoin, created in 2009, was the first decentralized cryptocurrency. Since then, numerous other cryptocurrencies have been created. These are frequently called altcoins, as a blend of alternative coin
  • In reality, it is a form of digital currency that uses encrypted cryptographic technology and runs on blockchain technology. Today there are various functioning websites which allow you to convert cryptocurrency to real money and transfer it directly to your bank account or vice versa.
  • It doesn’t have a physical tangible form which is why it’s called digital. Unlike all other forms of currency’s, it’s intangible so you can’t touch it, smell it, or put it in a safe.
  • This makes it hard for the older generations to take it seriously but it is being used to purchase, sell and transfer billions of dollars every single day.

Disadvantages of Cryptocurrency:

  • Difficult to understand – Cryptocurrencies are relatively new and come with a learning curve. People end up investing without proper knowledge and lose money to something they did not learn about.
  • Lack of knowledge – People are not aware of how to use cryptocurrency and hence open themselves to hacker. The technology is somewhat complex and therefore one needs to be mindful of it before investing.• Not accepted widely – Not many websites and companies accept digital currencies yet. Very few countries have legalized the use of cryptocurrencies. It makes it impractical for everyday use. Due to lack of acceptance, before buying or investing online or offline, you need to make sure that it’s accepted at that place where you want to use it.
  • Can lose your wallet – There is a possibility of losing your wallet. If you have stored the money in the form of digital currency on your phone or computer,
  • No way to reverse the payment – If you mistakenly pay someone by using cryptocurrency, then there is no way to get a refund of the amount paid.
  • Uncertainty – Since cryptocurrencies are so new, they are also very volatile. This is one of the main reasons mass adoption is taking longer than it should.

Blockchain technology: https://www.pwc.com/us/en/financial-services/fintech/assets/blockchain-infographic.png

The blockchain technology is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value. By design, the blockchain is a decentralized technology. … A global network of computers uses blockchain technology to jointly manage the database that records Bitcoin transactions. That is, Bitcoin is managed by its network, and not any one central authority.

Advantages of Blockchain technology

  • Transparency: One of the prime reasons blockchain is intriguing to businesses is that this technology is almost always open source. That means other users or developers have the opportunity to modify it as they see fit.
  • Reduced transaction costs: As noted, blockchain allows peer-to-peer and business-to-business transactions to be completed without the need for a third party, which is often a bank. Since there’s no middleman involvement tied to blockchain transactions, it means they can actually reduce costs to the user or businesses over time
  • Faster transaction settlements: When it comes to traditional banks, it’s not uncommon for transactions to take days to completely settle. This is due to protocols in bank transferring software, as well as the fact that financial institutions are only open during normal business hours, five days a week. You also have financial institutions located in various time zones around the world, which can delay processing times. Comparatively, blockchain technology is working 24 hours a day, seven days a week, meaning blockchain-based transactions process considerably more quickly
  • Decentralization: Another central reason blockchain is so exciting is its lack of a central data hub. Instead of running a massive data center and verifying transactions through that hub, blockchain actually allows individual transactions to have their own proof of validity and the authorization to enforce those constraints
  • User-controlled networks: Lastly, cryptocurrency investors are tend to be really encouraged by the control aspect of blockchain. Rather than having a third party run the show, users and developers are the ones who get to call the shots. For instance, an inability to reach an 80% consensus on an upgrade tied to bitcoin’s blockchain is what necessitated a fork into two separate currencies (bitcoin and bitcoin cash) more than four months ago.
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