The soaring popularity of digital currency and its situation in India


The soaring popularity of digital currency and its situation in India

From Bitcoin reaching an all-time high of 65,000 dollars to El Salvador becoming the first country in the world to adopt Bitcoin as its official currency alongside the US dollar, 2021 has been a critical year for digital currency all around the world. The popularity of cryptocurrency skyrocketed this year, especially with the outbreak of the COVID-19 pandemic as it increased the need for digital transactions.

Understanding cryptocurrency and its development

In simple terms, cryptocurrency is a digital medium of exchange that is not governed by banks or any central authority but governed by a network of encrypted databases called Blockchain. The safety and security of the payments are ensured by cryptographic techniques. The financial crisis of 2008 that is considered the worst financial crisis since the Great Depression pushed the need to develop a digital payment system that is independent of government and government-owned banks. This led to the development of the first and the most popular cryptocurrency, Bitcoin. Today, apart from Bitcoin there are numerous cryptocurrencies present in the crypto market such as Ethereum, Lite coin, Ripple.

Also Read:- Application of IOT in enhancing the healthcare system-The new age transformation

Looking at the positives and negatives of cryptocurrency

The most significant advantage of cryptocurrency is that since it is decentralized, it prevents single-point failure. This means that this system does not collapse with the failure of any financial institution as it does not include any centralized intermediaries. Because of the same reason, the transfers done by cryptocurrency are faster. The third advantage of cryptocurrency is its ability to create profits when people invest in it.

Despite the advantages of this digital system that was built to transform the financial structure, when we flip the coin, we can see the concerns regarding cryptocurrency. According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin uses approximately 122 Terawatt of electricity every year. Therefore, the environmental impact of cryptocurrency mining cannot be brushed aside. Apart from this, the volatility and fluctuations in the value of cryptocurrencies also raise grave concerns.

Moreover, cryptocurrencies are increasingly used by people for money laundering, terror financing, ransomware attacks, and other criminal activities. This reminds me of the ransomware attack on the colonial pipe of the US where the hackers asked for the ransom in the form of bitcoins as they knew that bitcoins could not be traced. Although the US Department of Justice could recover some amount of the bitcoins yet we cannot neglect how this incident lays bare the unlawful activities associated with cryptocurrency and the need to regulate them effectively in order to prevent them.

The status of digital currencies in India: its background and future

According to a recent report, there are more than 10 crore crypto investors in India. The popularity of cryptocurrency in India is evident from this fact. When we look at the background of cryptocurrency in India, in 2018 the Reserve Bank of India prohibited all the financial entities regulated by it from offering services for virtual currencies. It mentioned illegal activities and the risks to financial stability as the reasons behind this prohibition. However, in 2020 the Supreme Court of India declared this prohibition as “disproportionate” and repealed it.

The aim should be to promote these technological advancements while at the same time regulating to prevent their misuse. For that, there is a need to introduce and implement a well-designed framework that would regulate cryptocurrencies and act as a monitoring mechanism for them. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is intended to serve this purpose though the kind of regulations that will be put in place by this bill is not known.

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 will also introduce the RBI-issued digital currency in our country. This digital currency will also use the technology behind other cryptocurrencies, that is, Blockchain. Several other countries like Singapore and France are also working on their digital currencies. These digital tokens of a country’s official currency are also known as Central Bank Digital Currencies (CBDC) as they are issued and regulated by the central financial authority of a country.

Central Bank Digital Currencies are considered to be more stable and secure as compared to cryptocurrencies which are completely decentralized. But the success of the RBI-issued digital currency in India can only be assessed after a few years of its implementation. So, although the future of digital currency in India looks bright today, we cannot be certain about it.

Also Read:-How has the business ideas and plans witnessed drastic shift over the years?


Author- Adesh Chaurasia

He is an active learner, author and speaker when it comes to the subject of national development through scientific and relational ways. He presents his knowledge about his line of work in such a simple yet engrossing manner that it reaches out to the people so as to enhance their knowledge and put it to good use.

You may also like...

Leave a Reply

Your email address will not be published.