What is crypto currency?
Crypto is a digital or virtual currency, sometimes called as tokens, which can be traded for goods and services. Actually, crypto is not a currency – it is a misnomer – it is one of an asset class. Currency, gold, oil and stock are the major asset classes. After the 2008 recession, investors lost trust in these assets. Thus, crypto came into limelight and emerged as strong asset class. Crypto works using a technology called block chain, a decentralised technology.
What are the types of
Bitcoin was the first crypto currency. It touched sky high value with rising demand and led to further alternative currencies called altcoins. Bitcoin was launched by Satoshi Nakamoto in2009. The altcoins are Litecoin, Peercoin ,Cardana, Ethereum, Namecoin. The aggregate value of these currencies is around $1.5 trillion. A great chaos has been emerging over private and public crypto currencies. Private crypto uses several cryptographic measures and symbols which pave the way to hide transaction and other details, while in case of public crypto there is no such high level of privacy. Some private coins are Delta, Ucoin, Monero, etc.
How does it work?
It works via digital medium, encryption, and decentralised process (minting process at each level). Like the US Dollar and the Euro, there is no central authority that manages and administers the value of crypto currencies, hence the users became the sole determinants of value.
The normal currencies have legal backing, but in case of crypto there is no such backing: it is based on cryptographic proof instead of trust in authority. Records and transaction are maintained in the form of programmes called block chain.
Pros and cons
Crypto is not accepted everywhere, which is its biggest flaw. Being outside the purview of a banking authority, crypto make for easy money laundering, terror financing, etc. However, it is a cheaper and safe mode of payment. Between two parties funds can be transferred easily without the need of a debit card/ credit card/ banking system. As it is a decentralised currency, anyone can mint it on their own. The important aspect is that it keeps record at every step of the transaction, which is not possible in the normal financial system. It is immune to inflation. Thus it has many positives but regulation and purview is a must to run things smoothly.
Amid rising concern over financial stability, the center is going to pass the Crypto Currency and Regulation of Official Digital Currency Bill 2021, which will ban all private crypto currencies. Notably, crypto currency has gained momentum over the years, attracting Indian investors. Recently, Prime Minister Narendra Modi had said that all democratic countries need to work together on crypto and ensure that it does not end up in wrong hands. Several countries have totally banned crypto, some partially. El Salvador became the first country to legalise Bitcoin.
Steps to be taken
Digital awareness is key to not letting people fall into the traps of the fraudulent. Before investing, the investor should know all key aspects of crypto exchanges and be ready for drastic swings in the market. There should be regulation which will bring transparency, accountability, checks and balances. Digital infrastructure should be strengthened to an extent which can ensure oversight and minimise frauds and safeguard investors. Regulation will give government an opportunity to get tax returns on crypto, which will in turn boost the economy.