You may acquire money in various ways: you can earn it, discover it, counterfeit it, or steal it. Or, if you’re Satoshi Nakamoto, a superhumanly gifted computer programmer, you can invent it. That’s what he did on the evening of January 3, 2009, when he tapped a key on his computer and created bitcoin, new money. There was no coin and no bit. There wasn’t any paper, copper, or silver—only 31,000 lines of code and a notice on the Internet.
The economy is currently primed for new and developing consumption—these result from converging technical, economic, and societal events that alter traditional commercial interaction patterns. More precisely, the research investigates the junction of two cultural phenomena significantly influenced by technological breakthroughs and economic disruptions: the collaborative economy (CE) and blockchain technology. Indeed, both relied largely on technology and arose in the aftermath of the global financial crisis of 2008.
What is Cryptocurrency?
Cryptocurrency is a peer-to-peer network enabling anyone to send and receive payments. Rather than physical currencies exchanged in the real world, cryptocurrency payments exist solely as digital records of specific transactions in an online database. When transferring cryptocurrency funds, the transactions are logged in a public ledger. The Cryptocurrency is stored in digital wallets. Cryptocurrency is so named because it uses encryption to confirm transactions. This involves complex coding to store and transfer cryptocurrency data between wallets and public ledgers, all to provide security.
Bitcoin was the first Cryptocurrency since 2009, and still the most famous. Many people invest in Cryptocurrency for speculative purposes, meaning prices can be highly volatile.
Cryptocurrency is a type of decentralized digital money that is based on blockchain technology and protected by cryptography. To comprehend Cryptocurrency, one must first understand three concepts: blockchain, decentralization, and cryptography. A cryptocurrency, like US dollars, is a virtual means of exchange that employs cryptographic methods and a system to authenticate financial transfers and manage the production of monetary units.
In the realm of cryptocurrencies, a blockchain is a digital record with access restricted to authorized users. This ledger contains transactions involving various assets, including cash, real estate, and even intellectual property. The access is shared amongst its users, and any information given is visible, instantaneous, and “immutable”. Immutable means that whatever is recorded on the blockchain is permanent and cannot be changed or tampered with, even by an administrator. One distinguishing aspect of cryptocurrencies is that they are often not issued by any central body, making them potentially impervious to political meddling or manipulation.
The Benefits and Drawbacks of Cryptocurrency
Cryptocurrencies were designed to transform financial infrastructure. There are several gaps between the theoretical ideal of a decentralized system with cryptocurrencies and its execution at the current level of cryptocurrency development.
The following are a few benefits and drawbacks of cryptocurrencies.
- They eliminate central banks from money supply regulation: Some proponents prefer that bitcoin eliminates central banks from regulating the money supply, as these institutions seek to depreciate the currency over time via inflation.
- They are secure and private: The blockchain technology that underpins cryptocurrencies guarantees user anonymity. It also ensures high degrees of security using encryption, as previously described.
- They are decentralized, impervious to change, and transparent: The entire system operates on the principle of shared ownership, with data accessible to all authorized members and tamper-proof.
- They serve as a hedge against inflation: During periods of inflation, crypto is an excellent investment. Investors, for example, frequently compare cryptocurrencies to gold. One reason is that, like gold, they are in finite supply due to a limitation on mining any Cryptocurrency.
- They have yet to be widely known. They are a novel concept, and the long-term viability of cryptocurrencies has yet to be discovered.
- They are vulnerable to significant risks. Cryptocurrencies provide as many benefits as they make threats. Because they are extremely volatile and speculative and prone to severe downward spirals. Investing in cryptocurrencies may be dangerous for a variety of reasons.
- Scalability is a concern. This is a complex issue that has much to do with blockchain technology. As explained, the blockchain’s slowness renders it prone to transactional delays. This makes crypto payments inefficient when compared to contemporary electronic payment methods.
- They appear to have no intrinsic or underlying value might be a huge impediment. A supply-demand equation calculates the value of cryptos such as bitcoins.
- Furthermore, simple online predictions can result in a significant increase or decrease in the value of these coins, which is easy to understand.
- Additionally, the fact that cryptocurrencies are banned or restricted in many nations poses a serious threat. Their legitimacy is contested in nations like India.
Why different types of Cryptocurrency?
It’s vital to understand that Bitcoin is not synonymous with Cryptocurrency in general. Despite being the first and most valued Cryptocurrency, there is a huge market. If you’re considering going into cryptocurrencies, let’s start with the one that is widely traded and reasonably well-established in the market. NerdWallet has published guidelines for various popular cryptocurrencies, including Bitcoin and certain altcoins, or Bitcoin alternatives:
- Bitcoin is the original and premier Cryptocurrency.
- Ethereum is often used to carry out financial operations that are more complicated than those supported by Bitcoin.
- Cardano, a cryptocurrency competing with Ethereum, is overseen by one of its co-founders.
- Litecoin makes payments easier.
- Solana focuses on speed and cost-effectiveness.
- Dogecoin began as a joke and has become one of the most costly cryptocurrencies.
- Shiba Inu is yet another dog-themed coin with more sophisticated mechanics.
- Tether and USDC are examples of stablecoins, a type of Cryptocurrency whose values are intended to remain constant about real-world assets like the dollar.
As cryptocurrency usage grows, so are cryptocurrency rules established worldwide to oversee it.
- In 2017, The Reserve Bank of India (RBI) cautioned that virtual currencies and cryptocurrencies are not legal money in India. However, there was no restriction on virtual currency.
- 2018, The Reserve Bank of India (RBI) said that trading, mining, retaining, or transferring/using cryptocurrencies is punishable in India by a monetary fine or/and jail for up to ten years. The RBI also stated that it might issue digital rupees as legal money in India.
- In 2020, The Supreme Court of India lifted the RBI’s prohibition on Cryptocurrency.
- In 2022, the Government of India explicitly stated in the Union Budget 2022-23 that the transfer of any virtual currency/cryptocurrency asset would be subject to a 30% tax deduction. Gifts made in virtual goods or Cryptocurrency will be taxed in the recipient’s hands.
- In July 2022, The Reserve Bank of India (RBI) suggested a cryptocurrency prohibition citing ‘destabilizing impacts’ on the country’s economic and fiscal health.
Legal tender for VDAs
VDAs are neither governed nor prohibited in the absence of explicit law. Individuals and corporations are authorized to own, invest in, and trade VDAs as long as they follow existing regulations. Furthermore, any bank or other entity regulated by the RBI will be required to carry out due diligence activities by current rules and regulations governing financial service providers supervised by the RBI.
Finance Minister Nirmala Sitharaman stated that the Reserve Bank of India (RBI) had advised the government to develop cryptocurrency laws. Sitharaman stated that if a restriction were implemented, the Indian government would like to work with other nations. In response to questions about cryptocurrencies in the Lok Sabha, the Finance Minister stated that RBI had proposed creating legislation in this area. RBI believes that Cryptocurrency should be outlawed. She went on to say that because cryptocurrencies are borderless, international coordination is required to prevent regulatory arbitrage.
To a question about whether the RBI has approved instructions, circulars, directions, warnings, etc., over the last ten years restricting the issuing, purchasing, selling, retaining, & transmission of Cryptocurrency in India, the Finance Minister responded, “RBI has been cautioning users, holders, and traders of Virtual Currencies (VCs) via public notices that dealing in VCs is associated with potential economic, financial, and political risks.” In addition, on April 6, 2018, the RBI released a document barring its regulated firms from trading in virtual currency (VCs) or providing services to assist any person or company in dealing with or settling VCs.”
She said that RBI has also recommended its controlled companies to continue carrying out customer due diligence processes for transactions in VCs, by-laws controlling requirements. Like Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT), duties under Prevention of Money Laundering Act (PMLA), 2002, etc.
The RBI stated that cryptocurrencies are not a currency since the Central Bank/Government must issue any contemporary currency. Furthermore, the value of fiat currencies is supported by monetary policy and their legal tender status.
Still, the value of cryptocurrencies is completely based on speculation and unrealistically large returns, which would destabilize a nation’s monetary and fiscal stability, she noted while addressing during the Monsoon Session of the Parliament. In the RBI’s annual report, RBI governor Shaktikanta Das called cryptocurrencies a “clear danger,” saying that anything that draws value from make-believe, “without any underlying,” is essentially speculation disguised as a fancy moniker.
India is currently not FATF-compliant on cryptocurrency assets since the global money laundering, and terrorism financing watchdog wants governments to have a clear opinion on the legality of cryptocurrency assets to be compliant. The Indian government intends to formalize its position on the legality of bitcoin by the first quarter of next year to become Financial Action Task Force (FATF) compliant. Virtual assets offer several potential benefits. They could make payments easier, quicker, and less expensive, as well as provide alternate options for individuals who do not have access to traditional financial goods.
However, if not properly regulated, they risk creating a virtual haven for illegal & terrorist financial operations. The FATF has been closely tracking developments in the crypto-sphere and, in recent years, has seen the first governments begin to regulate the virtual asset industry. In contrast, others have outright forbidden virtual assets. However, most nations still need to do something about it. These global regulatory framework flaws have created enormous opportunities for criminals and terrorists to exploit.
The FATF has adopted worldwide, binding norms to prohibit the misuse of virtual assets for money laundering and terrorist funding, with the backing of the G20. A ‘virtual asset’ is any digital representation of value that may be exchanged, transferred, or used as payment. It excludes digital representations of fiat currency. The FATF guidelines guarantee that virtual assets are treated equally, with the same protections in place as in the financial industry. The laws of the FATF apply not just when virtual assets are traded for fiat money but also when they are moved from one virtual asset to another.
The FATF guidelines require nations to identify and minimize the risks associated with virtual asset financial activities and providers, licence or register providers and subject them to supervision or monitoring by competent national authorities. VASPs are subject to the same FATF-mandated safeguards as financial institutions. This guideline will assist governments and VASPs in understanding their anti-money laundering and counter-terrorist financing duties and properly implementing FATF regulations in this sector. The guide includes relevant examples as well as proposed solutions to implementation challenges.
In conclusion, Cryptocurrency has become increasingly popular as an alternative to traditional banking systems. While it has the potential to revolutionize financial infrastructure, there are still some issues to be addressed, such as gaps between the ideal and the current level of cryptocurrency development and the lack of intrinsic or underlying value. The Financial Action Task Force has implemented binding norms to prevent the misuse of virtual assets for money laundering and terrorist financing.
Additionally, virtual assets are neither governed nor prohibited without explicit law, allowing individuals and corporations to own, invest in, and trade. Despite the challenges, Cryptocurrency has the potential to revolutionize the world of finance and create a more transparent, secure, and efficient global financial system.
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