CRYPTOCURRENCY (Syllabus: GS Paper 3 – Economy)

News-CRUX-10     22nd May 2024        
Samadhaan

Context: The Reserve Bank of India (RBI) recently cautioned that cryptocurrencies, propelled by speculative interests, pose risks to the financial system, urging retail investors to exercise caution.


Cryptocurrency

  • About: Cryptocurrency refers to a digital or virtual currency that employs cryptography for security measures.
  • Decentralization: One of the defining features of cryptocurrencies is their decentralized nature, which means they are not under the control of any government or institution.
  • Examples: Prominent examples of cryptocurrencies include Bitcoin, Ethereum, and Litecoin.
  • How Does Cryptocurrency Work: It operates through a decentralized digital ledger called the blockchain, where transactions are publicly recorded and verified by a network of computers worldwide.
  • Three key-elements of crypto-currency:

oIt is a digital representation of value,

oIt can be transferred electronically and

oIt is recorded in a digital ledger (Blockchain Technology) that is widely accessible.

  • Types of Cryptocurrencies: Payment cryptocurrency, Utility Tokens, Stablecoins and Central Bank Digital Currencies (CBDC).


Significance of Cryptocurrencies

  • Corruption Monitoring: Operating on a peer-to-peer network, blockchain technology aids in monitoring corruption by tracing fund flows and transactions.
  • Efficiency in Time: Cryptocurrencies can significantly reduce costs and time for both senders and recipients, as transactions occur online with minimal fees and near-instantaneous processing.




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