Cryptocurrencies: Opportunity & Challenges in India

Narendra Kumar

11 Dec, 2020

What are Cryptocurrencies?

• A cryptocurrency is a type of digital assets designed to work as a medium of exchange like any other normal currencies, they are designed using cryptography to secure the transactions, to control the creation of additional units, and to verify the transfer of assets.
• Cryptocurrencies are digital tokens used to transfer money between individuals’ computers, and their peer-to-peer structures enable unanimous transfers.
• Cryptocurrencies can also be defined as a subset of digital currencies and are also classified as a subset of alternative currencies and virtual currencies.
• In cryptocurrency, the application cryptography is used to secure the transactions and to control the creation of new coins.
• Most cryptocurrencies are designed to gradually decrease the production of currency, placing an ultimate cap on the total amount of currency that will ever be in circulation.
• If compared with any other currencies held by any financial institutions or either kept as cash in hand, cryptocurrencies can be more difficult to seize by enforcing the law.
• The traceless nature of cryptocurrencies is one of many concerns that governments seek to address through increased regulation.
• As like the centralized banking, where the country’s government have full control over the value of a currency but in case of cryptocurrency government has no control over it as they are fully decentralized.
• The first decentralized cryptocurrency was created in the year 2009 named as Bitcoin. Since then, numerous cryptocurrencies have been created, these are frequently called altcoins.
• When a user spends a crypto coin, a transaction is added to an electronic public ledger, called a ‘blockchain’, which is similar to a bank record. Cryptocurrencies are controlled by a community of unrelated parties known as miners.

Cryptocurrency Legality:

• Cryptocurrencies are legal in most of the countries except in Iceland and Vietnam. China has banned all the financial institutions of China from handling bitcoins and Russia, while saying cryptocurrency is legal, has made it illegal.
• In India, it is still not clear whether the cryptocurrency is legal or illegal as there is no law which says cryptocurrency is illegal. So neither it is legal nor illegal.
• Japan legalized Bitcoin in April 2017 and accepted it as a legitimate form of currency.

Future of Cryptocurrency.

• Cryptocurrency is the future of financial around the globe. Some of the limitations that cryptocurrencies are facing today such as the digital fortune of currency can be erased by a computer crash, or that a virtual vault may be ransacked by a hacker – may be overcome in time through technological advances.
• Relative complexity compared to conventional currencies will likely to deter.
• There will be much more competition in the future as a payment method because some banks could issue their own cryptocurrency.  Decentralized and hybrid apps will take over the market in the next coming years.
• Bitcoin will not necessarily be used as a method of payment but primarily it will be used as a store of value. This revolutionary technology is going to have a very great future in India.
• Altcoins will steadily increase their values, popularity and the market cap, so they will be more used as payment gateway, another thing to consider is how other Fintech companies are getting involved with Indian Crypto Start-ups and how they might have their own rise to fame in the region and be a bigger representation of the locality that exists there. In this new and disruptive space, anything is possible.

Some of the real-world applications of technology related to cryptocurrency.

• Use in voting–People can vote to the deserving leader while being anonymous to their identity.
• Using in funds distribution –A huge fund is distributed to the leaders of the states but because of corrupt minds, the money vanishes and remains to pieces. Cryptocurrency will definitely help the country to get rid of it.

Criticism

• Many banks presently do not offer their services for cryptocurrencies and can refuse to offer services to virtual-currency companies.
• Cryptocurrency can be permanently lost from local storage due to malware, hacking or data loss, destruction of the physical media, effectively removing lost cryptocurrencies forever from their markets.
• With technological advancement in cryptocurrencies, the cost of entry for miners requiring specialized hardware and software is high.
• Cryptocurrency transactions are normally irreversible in many of the transaction after a number of blocks the transaction is confirmed, the key feature that cryptocurrency lacks is consumer protection against fraud.
• While cryptocurrencies are digital currencies that are managed through advanced encryption techniques, many countries governments have taken a cautious approach toward them, fearing their lack of central control and the effects they could have on the financial security of the country.
• An enormous amount of energy goes into mining of cryptocurrency.
• Traditional financial products have strong consumer protections. However, if any cryptocurrency is lost or stolen there is no intermediary with the power to limit consumer losses.
• Regulators in several countries have warned against their use and some have taken concrete regulatory measures against it to dissuade users.
• For instance, there is a lack of regulatory legislation regulating digital currencies and a lack of user and consumer protection.