Abstract
The article gives a brief explanation of the Introduction and development of Cryptocurrencies. Further, the writer has mentioned the pros and cons of Cryptocurrencies. The article also states the importance and criticisms of digital currencies and their features, further understanding and considering the importance of digital currencies the government of India introduced a bill namely the Official Digital Currency Bill, 2021 which has also been briefed in the Article.
The introduction of Cryptocurrency can be traced back to when American cryptographer David Chaum released a conference paper explaining an early type of anonymous cryptographic electronic money in 1983, the concept of cryptocurrencies first came to light. The idea was to create a kind of money that could be distributed anonymously and without the need for centralized organizations (i.e. banks) based on his original concepts, Chaum created the proto-cryptocurrency Digicash in 1995. Before money could be delivered to a destination, it needed certain encryption keys and user software to withdraw money from a bank.
In 1998, Nick Szabo created Bit Gold, frequently seen as a direct forerunner to Bitcoin. Participants had to devote computer resources to solving cryptographic challenges, and those that did so were rewarded. It creates something that closely resembles Bitcoin when combined with Chaum's work. However, without the aid of a centralized authority, Szabo was unable to resolve the famed double-spending issue. As a result, it took another ten years before an unknown person or a group of persons under the name of ‘Satoshi Nakamoto’ launched the development of Bitcoin and other cryptocurrencies.
This article is written by our intern Komal Hasmukh Patel, a third-year law student from Vasantdada Patil Pratishthan’s Law College, Mumbai.
Cryptocurrency
Cryptocurrency is a form of currency that is digital and exists virtually, it uses cryptography to secure transactions. Cryptocurrencies do not have a central issuing or regulating authority, instead, it uses a decentralized system to record transactions and issue new units. Cryptocurrency is one of the developments of the blockchain that is often used as a decentralized digital currency. Different types of digital currency are Bitcoin, Ethereum, Litecoin, Monero, and many others. Although it has no physical form, this currency functions the same as conventional currencies in general and has an exchange rate. Exchange rates on Cryptocurrency fluctuate which means unexpected, this is often exploited by traders. When cryptocurrency funds are transferred, the transactions are recorded in a public ledger. Cryptocurrency is stored in digital wallets.
Understanding the concerns and increasing craze of investments in cryptocurrency among the people, it becomes nearly impossible for the government to ban cryptocurrencies completely. In order to further bring the flow of digital currencies under control, the government of India taking initiative to take control and create a regulatory body for the digital currency brought up “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”. Where all crypto trading will be allowed only through platforms or exchanges which are officially recognized by the Government. There will be a new regulatory body introduced under the ambit of RBI. Secondly, since crypto engages in cross-border transactions, a Securities Exchange Board of India-like body will be given the authority to monitor the trading system.
Official Digital Currency Bill, 2021
During the winter session, the Official Digital Currency Bill, 2021, was introduced in Parliament to regulate cryptocurrencies and create a framework for their establishment and issuance by the Reserve Bank of India. Although there were few exceptions, the fundamental goal of this measure is to outlaw the export of any private cryptocurrency. In the beginning of 2021, the Indian government insisted on a total prohibition on cryptocurrencies and was obstinate in its opposition to their implementation.
Features of Official Digital Currency:
Blanket Ban - Initially the government hesitated to introduce the country’s own digital currency, but in order to stop the outflow of the cryptos of the currency and regulate the transactions of the cryptocurrency Government of India issued Official Digital Currency Bill, 2021. To bring on a blanket ban on private cryptocurrencies the government brought in this initiative.
Private CryptoCurrency Issue - the private cryptocurrencies were difficult to track and even classify. However, the government looked forward to bringing the concept of crypto under one umbrella and under one authority. There are categories of crypto which are engaged in anonymous blockchain transactions. Such coins conceal the user’s real wallet and address and at times, end up combining multiple transactions with each other to elude the chain study and these are referred to as “Private Crypto Currencies”
Ownership - Aiming at major ownership and control the government introduced the bill. There have been ample private cases such as phishing scams, investment or business opportunity scams, cloud mining scams, etc. in the past. So, if the Government is looking to ban such private cryptocurrencies, then it can be seen as a prudent move.
No replacement of Fiat Currency - reading the bill it can be clearly understood that cryptocurrency can never become legal tender in India. The main idea behind the cryptocurrency was to come up as an alternative to fiat currency which is owned, controlled, and regulated by a Government body. But in an economy like India, any cryptocurrency can never replace or take a place of Fiat Currency in any situation.
Promotion of New Currency - In order to promote cryptocurrency backed by RBI and ban all the other types of private cryptocurrencies this bill was introduced. It was also assumed that the government agreed to introduce and allow cryptocurrencies to be traded only which are transacted through official platforms or exchanges permitted by the Government. The bill also mentioned the introduction of a new regulatory body to be brought under the ambit of RBI to regulate cryptocurrency.
Advantages and Disadvantages of Bill
Virtual Currency is considered to be highly secured as it uses blockchain technology. The wallet is linked to a private key which is not otherwise in other cases and not with any individual person. Considering the benefits of cryptocurrencies, the government approached to regulate and bring in crypto under their authority instead of completely banning it.
But even if the virtual currency is safe, the untraceability of the currency is a big concern for the government as it has the potential of being used for illegal purposes. It is difficult to use cryptocurrency and blockchain technology in the current era of globalization because cryptocurrency has the drawback of not having an authority accountable for handling all issues that arise in all transactions, and money laundering crimes frequently occur.
Conclusion
To conclude, it can be stated that the government of India will regulate rather than ban cryptocurrencies, and Indian institutions will follow the lead of their American counterparts in adopting crypto. WazirX CEO Nischal Shetty mentioned “The government’s impetus towards a regulated approach for crypto would put India on the world map with other developed countries dealing in crypto. This, coupled with strong institutional participation in crypto, would go a long way in paving the future of this popular asset class in India and helping us become Atmanirbhar Bharat.”
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