It is a virtual or digital currency that is created, stored, and transacted using blockchain technology. The word ‘Cryptocurrency’ is derived from an encryption technique known as cryptography. It is used to secure the decentralised network. The most important characteristic of Cryptocurrency is that it is not controlled by any central authority (like the central banking system) instead it uses decentralised control. Examples of cryptocurrencies are Bitcoin, Digicoin, Litecoin, SOV, etc.
Coins are added to the Bitcoin network through the process of mining. A vital part of maintaining and developing the blockchain ledger is the network’s ability to verify new transactions. “Mining” is a challenging computational maths problem that is solved using sophisticated gear. The next block of bitcoins is given to the first computer that solves the challenge, and the process repeats itself.
Those that mine Bitcoins are motivated to assist in the fundamental goal of mining: to validate and monitor Bitcoin transactions and ensure their legitimacy. A “decentralised” cryptocurrency, Bitcoin does not rely on a central authority to regulate itself, like a central bank or government, because so many people throughout the world share these tasks.
Cryptocurrency Payments through Gateways
When it comes to processing payments in digital currencies, a cryptocurrency payment gateway is no different from a traditional credit card processor. Using a cryptocurrency gateway, you may receive digital payments and exchange them for fiat currency instantly.
Cryptocurrency is no longer a source of anxiety or trepidation for businesses, according to these enterprises.
Pay attention to the fact that digital currency payment gateways are not necessary. To accept cryptocurrency payments, you can utilise your own wallet; the extra labour of exchanging cryptocurrencies and managing a wallet is taken out of your hands by gateways.
Cryptocurrency Around the World
- Venezuela: Venezuela adopted Petro Cryptocurrency in 2018, given fiat currency hyperinflation
- Marshall Island: Marshall Island adopted SOV or Digital Sovereign in the year 2018
- SOV is used as legal tender and provides Marshall Island with its own currency, reducing its dependence on them
India and Cryptocurrency
- India is necessarily a cash-based economy, but the ‘Digital India’ initiatives of the government have increased emphasis on digital currency
- In 2017, the Indian government formed a committee headed by Subhas Chandra Garg to study issues related to virtual currencies
The committee recommendation is as follows:
- Banning of cryptocurrency: Due to the risk and volatility associated with cryptocurrency
- Digital Ledger Technology: The Report highlighted the positives of Digital Ledger Technology (DLT)
- DLT based systems can be used by banks and other financial firms for processes like fraud detection, loan issuance
- Other Proposals: Committee suggested that the government should keep an eye for ‘official digital currency’ as the RBI Act of 1943 permits the government to approve Digital Currency
The reasons as stated by the Subhash Committee for banning cryptocurrency are as follows:
- Volatile nature of cryptocurrencies (however, other investments are also volatile, and this should be left to the investors)
- These are used for transactions between criminal groups and for criminal activities
- No government backing
Advantages of Cryptocurrency:
- Easy to Use: Since cryptocurrency uses modern technology like the Internet, smartphones and other devices
- Funds can be transferred directly between the parties without the involvement of third parties like banks
- Low Transaction Cost: Since a cryptocurrency removes the intervention of third parties like banks in the transaction, its transaction cost is lower in comparison to the conventional banking system
- Transparency: In cryptocurrency, every transaction is recorded on the blockchain
- Blockchain keeps the information about every transaction
- Decentralization: Since blockchain does not store any information in a central location
- Information is distributed across networks of computers making it difficult to tamper with
Disadvantages of Cryptocurrency:
- Probably the most pressing issue with cryptocurrencies is their inability to scale
- The volume of transactions processed by payment giant VISA each day still dwarfs the growth in the number of digital currencies and their usage
- In addition, until the infrastructure delivering these technologies is widely scaled, cryptocurrencies cannot compete with the speed of a transaction on the same level as players like VISA and Mastercard
- Cryptocurrencies, by their very nature as digital technology, are vulnerable to security breaches and could end up in the hands of hackers
- There is already proof of this, as numerous ICOs have been penetrated this summer, resulting in the loss of hundreds of millions of dollars to investors
- We’re already seeing a number of companies taking a proactive approach to addressing this issue, and they’re employing advanced cybersecurity methods that are far more advanced than those typically employed in the banking industry
- When Warren Buffet recently described the cryptocurrency ecosystem as a bubble, he mentioned price volatility as one of the main issues
- By tying the bitcoin value directly to tangible and intangible things, it can be overcome
- As adoption rises, consumer confidence should follow, decreasing the volatility in the market
India is poised to take advantage of the next wave of the digital revolution by deploying its human capital, skills, and resources to make a significant impact. All that has to be done is to properly formulate policies. Indians should not be made to just ignore the Fourth Industrial Revolution’s role in blockchain and crypto-assets.