CRYPTO-CURRENCY (Syllabus: GS Paper 3 – Economy)

Context: A blanket ban on crypto assets may be hard to pull off, and nations must instead apply rules on money laundering and terror finance to these assets and service providers, according to joint paper from the International Monetary Fund (IMF) and G20’s risk watchdog, the Financial Stability Board (FSB).

Crypto-Currency

• About: A crypto-currency is defined by three key elements.

o1st: it is a digital representation of value,

o 2nd: it can be transferred electronically and

o3rd: it is recorded in a digital ledger that is widely accessible.

• Definition: It is a digital payment system that doesn't rely on banks to verify transactions. It’s a peer-to-peer system that can enable anyone anywhere to send and receive payments.
• Working of Crypto-Currencies:

o It uses encryption to verify transactions. 

o It run on a distributed public ledger called blockchain, a record of all transactions updated and held by currency holders.

o Units of crypto-currency are created through a process called mining.

• Advantages of adopting crypto-currencies: Cheaper and safer, Transaction values cannot be replicated, potential to transform the entire financial system, a decentralised finance matrix, No identity theft, immediate settlement, access to everyone, lower fees etc.
• Issues involved with legalizing crypto-currencies: Could pose adverse destabilisation of financial systems, could weaken governments’ ability to set monetary policy and bring changes accordingly, could also allow foreign powers to accrue influence in country’s money supply, pose significant security risks, drug traffickers, ransomware attackers and money launderers can all make use of blockchain technology to operate outside of the legal framework.