UNIT V

INTRODUCTION TO
CRYPTOCURRENCI
ES
 WHAT ARE CRYPTOCURRENCIES?

A cryptocurrency (or “crypto”) is a digital currency that

can be used to buy goods and services, but uses an online
ledger with strong cryptography to secure online
transactions

https://www.geeksforgeeks.org/what-is-a-cryptocurrency/
 FEATURES OF CRYPTOCURRENCIES
• Decentralization: Not controlled by a central authority or government.
• Security: Use cryptographic techniques to protect against fraud and hacking.
• Transparency: Most cryptocurrencies operate on a public ledger called a
blockchain
• Anonymity: They offer a high degree of privacy and can allow users to transact
without revealing their identity.
• Limited Supply: Cryptocurrencies are designed with a limited supply to
maintain their value and prevent inflation.
• Global Accessibility: Cryptocurrencies can be accessed and used from anywhere
in the world
• Low Transaction Fees: Compared to traditional banking and financial
institutions, cryptocurrencies generally have lower transaction fees
• Programmability: They can be programmed to execute auto-debit
 ORIGIN
• Bitcoin was launched in 2009
• An individual or group known by the pseudonym “Satoshi Nakamoto”
created Bitcoin
• Exact identity is still unknown
• To this day, Bitcoin remains the most-used, valuable and popular
• Along with Bitcoin, other alternative cryptocurrencies with varying degrees
of functions and specifications have been created.
• Some are iterations of bitcoin while others have been created from the ground
up
• As of March 2021, there were over 18.6 million bitcoins in circulation with a
total market cap of around $927 billion.
OTHER POPULAR
CRYPTOCURRENCIES A.K.A
ALTCOINS
• Litecoin
• Peercoin
• Namecoin
• Ethereum
• Cardana
MECHANISM/MODUS OPERANDI
FOR
FOR
INVESTMENT
PURCHASES
S
BLOCKCHAIN: PLATFORM POSES BLOCKCHAIN: NEEDS TO BE
CRYPTIC PUZZLES DECRYPTED

MINING: MINERS VALIDATE

HARD FORK: A PATHWAY IS
PUZZLES USING SPECIALISED
DECIPHERED TO CREATECOINS
TECHNIQUES

CONTINUUM: NEW PATHWAYS

GENERATION: EVERY PUZZLE
FOLLOW THE FIRST AND
UNBLCKED GENERATES COINS
CONTINUE TO GENERATE COINS
USERS CAN OBTAIN THROUGH
EXCHANGES/BROKERS AND USE
USERS CAN OBTAIN THROUGH
FOR RETAIL PURPOSES BY
EXCHANGES AND TRADE FOR
STORING THEM IN HOT
PROFITS
(ONLINE)/SOFT (OFFLINE)
 REGULATIONS ON CRYPTO IN INDIA
• Indian crypto exchanges (WazirX, CoinDCX) will have to report
suspicious activities to the Financial Intelligence Unit India (FIU-IND).
• This action aligns with the worldwide trend of mandating that digital asset
platforms adhere to anti-money laundering protocols.
• Crypto assets, Web3 and other virtual assets are new and evolving sectors
and need international collaboration in framing effective legislation.
• Budget 2022-23 introduced a 30% tax on income from cryptocurrency and
other virtual assets
• A 1% tax deduction at source (TDS) was also introduced on transactions
in similar assets above a threshold limit. Gifts in crypto and digital assets
were also taxed.
https://byjus.com/free-ias-prep/crypto-trade-under-money-laundering-laws/
 ADVANTAGES AND DISADVANTAGES
OF CRYPTOCURRENCY
Advantages
• Funds transfer between two parties will be easy without the need of third party like credit/debit cards or
banks
• It is a cheaper alternative compared to other online transactions
• Payments are safe and secured and offer an unprecedented level of anonymity
• Modern cryptocurrency systems come with a user “wallet” or account address which is accessible only by a
public key and pirate key. The private key is only know to the owner of the wallet
• Funds transfer are completed with minimal processing fees.
Disadvantages
• The almost hidden nature of cryptocurrency transactions makes them easy to be the focus of illegal
activities such as money laundering, tax-evasion and possibly even terror-financing
• Payments are not irreversible
• Cryptocurrencies are not accepted everywhere and have limited value elsewhere
• There is concern that cryptocurrencies like Bitcoin are not rooted in any material goods. Some research,
however, has identified that the cost of producing a Bitcoin, which requires an increasingly large amount of
energy, is directly related to its market price.
 FINTECH
• Fintech, or Financial Technology, refers to the technological innovation
in the design and delivery of financial services and products.
• Technology in finance continues to evolve; advancements include the
use of Big Data, artificial intelligence (AI), and machine learning
• All these innovations aim to evaluate investment opportunities, optimize
portfolios, and mitigate risks.

https://
www.researchgate.net/publication/374418984_pptFintech_trends_and_ch
allenges
RECENT DEVELOPMENTS IN FINANCIAL
TECHNOLOGY
 FINTECH IN INDIA
• Regulatory FRAMEWORK:
• Ministry of Finance
• RBI
• International Financial Services Centre Authority Act, 2019
• India Stack: Aadhar, UPI, Bharat Bill Payments, GSTN
• Inter-Ministerial Steering Committee on FinTech
• Account Aggregator Framework (AA)
• Infrastructure:
• $50 Bn – 2021, $150 Bn in 2025
• 2000+ FinTech companies
• 3rd Largest FinTech economy in the world
• 46% of FinTech transactions globally-2022
• Benefits
• Financial Inclusion
• Major Economic driver
• Seamless customer journeys
• Cybersecurity
• Skilled workforce
NPCI
• NPCI is an umbrella organisation for all retail
payment systems in India. It was set up in 2008
with the support & guidance from Reserve Bank
of India (RBI) & Indian Banks Association
(IBA), in accordance with the provisions of the
Payment and Settlement Systems Act, (2007). A
registered company under Section 8 of the
Companies Act, 2013.
 Products & Services offered by NPCI
• Unified Payments Interface (UPI) Unique payment solution which empowers a recipient
to initiate the payment request from a smartphone.
• Immediate Payment Service (IMPS) A 24X7, real time, cost effective, independent
channel, retail payment service
• RuPay Robust card scheme designed to offer payment products with superior features &
processes specifically designed to cater to diverse consumer needs.
• *99# USSD based mobile banking platform that makes banking services accessible to all the
bank account holders on their mobile phones.
• National Automated Clearing House Centralised payment system developed to
consolidate multiple ECS systems
• Aadhaar Enabled Payment System Bank led model which allows online financial
inclusion transactions at micro-ATMs
• e-KYC Electronic way of conducting authentic & real time KYC of a customer using
Aadhaar authentication.
• National Financial Switch Facilitates routing of ATM transactions through inter-
UPI
• UPI is a payment system developed by the National
Payments Corporation of India (NPCI) that allows users to
make instant bank-to-bank transfers using a mobile device. It
is a digital payment system that enables users to transfer
money between bank accounts without the need for
traditional banking infrastructure such as cards, point of sale
(PoS) machines or ATM's. It facilitates 'virtual payment
address'​ as a payment identifier for sending & collecting
money & works on single click 2 factor authentication.
PAYMENT BANKS
• Payments bank is a new form of bank-created under the
purview of the Reserve Bank of India (RBI). Payments banks
can accept a limited deposit of ₹100,000 per customer and
may be increased further. These banks cannot lend loans
and issue credit cards but they can offer services such as net
banking, ATM cards, debit banks and Mobile Banking.
ORIGIN OF PAYMENT BANKS
• 2013 - The Committee on Comprehensive Financial Services for Small Business and Low-Income
Households
• 2015 – Grant of licenses under Banking Regulation Act, 1949

ELIGIBILITY REQUIREMENTS FOR PAYMENT

BANKS
• Minimum capital requirement is 100 crore
• For the first five years, the stake of the promoter should remain at least 40%
• 25% of its branches must be in the unbanked rural area
• Eligible entities to function as payment banks are:
• Non-banking prepaid instrument issuers
• Mobile telecom companies
• Non-Banking Finance Companies (NBFC)
• Corporate business correspondents
• Co-operatives and
• Supermarket chains
E-WALLETS
• A E-Wallet/mobile wallet is a way to carry cash in digital format
• Credit card or debit card information can be linked in mobile device to
mobile wallet application or money can be transferred online to
mobile wallet.
• An individual's account is required to be linked to the digital wallet to
load money in it.
• Most banks have their e-wallets and some private companies.
e.g. Paytm, Freecharge, Mobikwik, Oxigen, mRuppee, Airtel Money,
Jio Money, SBI Buddy, itz Cash, Citrus Pay, Vodafone M-Pesa, Axis
Bank Lime, ICICI Pockets, SpeedPay etc.
Services Offered
• Balance Enquiry Funds Transfer limit:
• Passbook/ Transaction history For Users
• Add money No KYC - Rs 20,000/ month
• Bank A/c (revised from Rs 10,000 to current
• All Cards till 30th Dec. 2016)
Full KYC – Rs 1,00,000/- month
• Cash-In
For Merchants
• Accept Money Self-Declared - Rs 50,000/ month
• Pay money With KYC – Rs 1,00,000/- month
• Another wallet (mobile no.) with
same provider
• Pay merchant
• Bar Code reader
• Manage Profile
• Notifications
PAYMENT GATEWAYS
• A payment gateway is a digital service that facilitates
secure and encrypted transactions between a merchant
and their bank and/or processor after a purchase is
made. In other words, it’s the bridge that enables the
transfer of funds from the customer's preferred
payment method to the merchant.
• Eg: Razor Pay, JusPay
PROCESS OF PAYMENTS VIA
FINTECH
 DIFFERENCES BETWEEN PAYMENT
GATEWAY AND PAYMENT PROCESSOR
Basis of
Payment Gateway Payment Processor
Distinction

Collects, encrypts and verifies an online Communicates between the merchant, issuing
Meaning
customer's credit card information bank and acquiring bank to transfer funds

Acts as an online point-of-sale (POS) Acts as an in-person point-of-sale (POS)

Touch point
terminal to make sure the card is valid terminal to make sure the card is valid

Intermediary between business and Intermediary between business, customer's

Channel
customer bank and merchant's bank

Must be used in conjunction with a

Function Can be used as a stand-alone service
payment processor
Best for: e-commerce or card-not-present
Suitability Best for: POS, in-person transactions
transactions
 A COMPARISON
Payment Service Payment Payment Payment Payment Banks
Provider Gateway Processor Network

Stores card Verifies and Verifies Stores and Banking services

information and passes on transactions at processes card except loans and
acts as link information to POS and approves information credit cards
between user and payment processor payments
bank. (Gpay). at POS. Verifies
Also acts as and processes
Payment payments in
Processor for online
merchants. transactions.

BHIM, Gpay, RazorPay, JusPay, PayPal, Stripe Visa, MasterCard India Post, Bharti
PayTM, CCAvenue Airtel
PhonePay, PayPal,
Stripe
MICROFINANCE
• Microfinance is a banking service provided to low-income
individuals or groups who otherwise would have no other
access to financial services.
• Microfinance allows people to take on reasonable small
business loans safely, in a manner that is consistent with
ethical lending practices.
ORIGIN OF MICROFINANCE

• 18th Century-Jonathan Swift-Irish Loan Fund System

• Popularity in 1970s
• Bangladesh-1983-Grameen Bank-Mohammed Yunus-
Inspired Regional Rural Banks (RRBs)
 Micro Finance Institutions (MFIs)
• MFIs are financial companies that provide small loans to people
who do not have any access to banking facilities.
• In India, all loans that are below Rs.1 lakh can be considered as
microloans.
• Different types of MFIs: NGOs, SHGs, Banks etc.
• Non Banking Finance Company (NBFC)-MFIs in India are
regulated by The Non-Banking Financial Company-Micro
Finance Institutions (Reserve Bank) Directions, 2011 of
the Reserve Bank of India (RBI).
 Aspect Banks NBFCs

Regulated by the RBI under the Banking Regulations Act,

Regulatory Act Regulated by the RBI under the Companies Act, 1956
1949

Functions Offer a wide range of banking services. Engage in lending and investment activities.

Deposit Acceptance Accept deposits from the public. Do not accept demand deposits from the general public.

Issue of Cheques Issue and accept cheques. Cannot issue or accept cheques.

Banking License Require a banking license to operate. Do not require a banking license to operate.

Have the power to create credit through fractional reserve

Credit Creation Cannot create credit like banks.
banking.

Clearing House
Are members of the clearing house. No clearing house membership.
Membership

Government Guarantee Government insurance schemes may guarantee deposits. No government guarantee on deposits.

Access to various facilities the RBI provides, such as

Access to RBI Facilities No access to such facilities.
borrowing money and access to payment systems.
Mandated to allocate a certain percentage of their lending to
Priority Sector Lending Not mandated to follow priority sector lending norms.
priority sectors as per regulatory requirements.
 REGULATIONS
A MFI in India is registered as one of the following –
• NGOs comprising of Societies and Trusts
• Cooperatives
• Section 8 Companies
• For profit NBFCs
• NBFC MFIs
• In case a company wishes to register itself as an NBFC-MFI, certain
specifications by the RBI must be met. A minimum of 75% of the NBFC-
MFI’s loan portfolio must have been originated for the purpose of activities
that generate income. In addition to this, 85% of total assets must be
qualifying assets.
MUDRA (Micro Units Development & Refinance
Agency)
• Pradhan Mantri MUDRA Yojana (PMMY) is a scheme launched by the
Hon’ble Prime Minister on April 8, 2015 for providing loans up to 10
lakh to the non-corporate, non-farm small/micro enterprises.
• These loans are classified as MUDRA loans under PMMY.
• These loans are given by Commercial Banks, RRBs, Small Finance
Banks, MFIs and NBFCs.
 Crowdfunding
• Crowdfunding is the practice of funding a project or venture by
raising small amounts of money from a large number of people,
typically via the Internet. Crowdfunding is a form of crowdsourcing
and alternative finance.

Origins:
2012:
1700s: 2006:
1852: 1976: 1997: 2001: US-
Irish Michael
Credit Gramee Marillio ArtistSh Crowdfu
Loan Sullivan-
Unions n Banks n Band are nding
Fund coined
Bill
 Features
• Goals: Profit/For-profit
• Fairness: Return of funds in case of non-accomplishment
• Community Engagement
• Due Diligence: Regulations of websites in concern
• No collateral
• Processing Fees
• No Guarantee

Types

Notes: https://www.businessnewsdaily.com/4134-what-is-crowdfunding.html
Regulations in India
• Equity Crowdfunding is illegal in India
• All other types such as donations, P2P are legal
• Private crowdfunding of businesses must not extend to more than 200
people
• Advertisements of private crowdfundings are forbidden
Investment Banking
• Investment Banking focuses on the creation of wealth
for the entities such as Corporates, and State & Central
Governments. These entities identify the risks of
projects and reduce the time and expenses involved to
optimize fund utilization and improve operational
efficiency.
 Features
• Underwriting services
• M&A advisory
• Fee-based advisory services
• Trading platforms for trading
• Research services
• Back-end services for corporates
• Capital restructuring

Notes:
https://www.equiruswealth.com/blog/all-you-need-to-know-about-merchant-banking-and-investment-banking
 Regulations in India
• RBI
• SEBI
• NBFCs under Companies Act
• Banking Regulations Act, 1949
• AIBI (Association of Investment Bankers in India):
• created to ensure members were in compliance with banking regulations and that
their activities were kept in check.
• to ensure members institutions follow its ethical and legal practices
• to promote the industry of investment banking in India and the business interests
of its members.
Resources
• https://corporatefinanceinstitute.com/resources/career/investment-b
anking-india
/
• https://www.mbaknol.com/international-finance/investment-banking
-in-india
/
• https://
www.scribd.com/document/441018236/Regulatory-Framework-for-In
vestment-Banking-in-India