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Cryptocurrency

1.1 Definition
• Cryptocurrency → digital currency secured by cryptography → medium of exchange where the ownership
data is stored in a computerized database; Based on→ Blockchain technology
• Cryptography- The science of protecting information by transforming it into a secure format through
encryption.

1.2 Features
• Decentralized; Security; Anonymity; Speed; Ease of transfer; Cross border trade;

1.3 Data
• Bitcoin launch→ 2008-09.
• Current scenario
- 1.5 crore Indians hold cryptocurrencies assets; India ranks→ 11th out of 154 nations in terms of
cryptocurrency adoption.
- Investments grew from →$923 million in April 2020 to $6.6 billion in May 2021.

1.4 Advantages of cryptocurrency

• No middle man- makes transfer between two people easy and eliminates the involvement of third party →
banks.
• Minimal transaction fee :
o Service charge: Intermediaries draw service charge → almost 3% globally which equals to 100$
trillion;
o Processing fee- charges minimal processing fees for fund transfer.
• Security -Payments are safe and secured →due to digital ledger of cryptocurrency transactions.
• Wallet- the account addresses of the user which is accessible only by a private and a public key; the private
key is unique and known only to the owner of the wallet.
• Instantaneous transaction →help save time of both the parties; everything is being done on the internet.
• International monetary market : work in countries with unstable economy; poor institutional strength;

1.6 Disadvantages of cryptocurrency

o Vulnerability: It’s hidden nature of transaction →illegal activities → terror-funding, money laundering and
tax-evasion.
o The RBI & Ministry of Finance issued statements on cryptocurrencies ;
o Frauds and scams – Squid cryptocurrency
o Payments in one go: Payments cannot be reversed back; no rollback and no central legal authority;
o Acceptance: Not legal in many countries → holds different values at different places; almost 90% of the
currencies are scams.
o Risky investment: Not issued by the government agency of most countries→ makes it less reliable; Reports
of hacking of several exchanges; Highly volatile;
o Price: depends on demand and supply; high volatile; cannot be relied as medium of exchange of value
o Virtual asset: Lack underlying asset and sovereign guarantee;

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1.7 NFT- Non fungible tokens

• Definition: Digital assets →exist on a public Blockchain → serves as a record of ownership. Anyone can
view the items, only the buyer of an NFT has the ‘official’ status of being its owner.
• Ownership: Give buyers a sense of “unique ownership” and “Digital Immortality”→ have unlocked
exciting opportunities for digital commerce and engagement.
• Minting: Unlike digital items that can be endlessly modified and reproduced, each NFT has its own digital
footprint→ makes it one of a kind. All kinds of digital objects (images, text, videos, music and even tweets)
can be converted into NFTs.
• Hassle free: Digital in nature→ does not involve inconvenience or cost of shipping products.
• Future: Digital nature and long shelf life→NFTs can play a significant role in the world of e-commerce and
market with high-end goods.

1.8 Way forward

• Regulatory issues
o RBI, 2018→ RBI issued a circular preventing commercial and co-operative banks, payments banks,
small finance banks from Dealing in virtual currencies.
o SC: Supreme Court, 2020 struck down RBI’s banking ban on crypto.
o GoI: Regulation of official digital currency bill, 2021 which seeks to prohibit all private
cryptocurrencies in India→ cryptocurrency like bitcoin is not controlled by any private or public
entity.
• Solutions
o Regulation -well defined regulations should be laid → for (hacking, error, pricing variations,)→ it is not
misused; open investors are to be protected from market volatility and scams.
o Awareness -Awareness and proper knowledge of cryptocurrency should be provided with
transparency and well defined framework to attract investors.

Forum Learning Centre: Delhi - 2nd Floor, IAPL House, 19 Pusa Road, Karol Bagh, New Delhi - 110005 | Patna - 2nd floor, AG Palace, E Boring Canal Road, Patna,
Bihar 800001 | Hyderabad - 1st & 2nd Floor, SM Plaza, RTC X Rd, Indira Park Road, Jawahar Nagar, Hyderabad, Telangana 500020
9821711605 | https://academy.forumias.com | admissions@forumias.academy | helpdesk@forumias.academy