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Cryptocurrency

“Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of the rest of us.” – Thomas Carper, United States Senator.
Cryptocurrency
What is the meaning of cryptocurrency?
Cryptocurrency has been dubbed as the “money of the future” and the “unicorn of the 21st century”. A cryptocurrency is a digital asset that is designed to work primarily as a medium of exchange. It uses strong cryptography to perform the following functions: secure financial transactions, administer the creation of additional units and substantiate the transfer of assets.

Cryptocurrencies use decentralized control instead of centralized digital currency and central banking systems. The decentralized control of cryptocurrencies works through a distributed ledger technology, usually a blockchain which serves as a public financial transaction database. Therefore, it is a virtual or digital currency that uses cryptography for security, which is why the cryptocurrency is difficult to counterfeit and are limited entries in a database that nobody can change or alter in any form unless certain specific conditions are met.

Bitcoin is generally considered to be the first decentralized cryptocurrency. Bitcoin was developed by Satoshi Nakomoto. He found a way to develop a decentralized digital cash system. A lot of companies and individuals had tried to develop something similar but they had all failed.

Some of the most common cryptocurrencies are- Bitcoin, Ethereum, Ripple, NEM, Litecoin, IOTA and Dash.

How does it work?
A very important and frequent problem faced by any payment network is to solve and tackle the issue of double-spending. Double-spending is a fraudulent technique where the same amount is spent twice. The initial traditional solution for this problem was the appointment of a trusted third party, which would be a central server, that would keep records of all the balances and transactions. This method obviously always entailed an authority that controlled our funds and had their hands on all our personal data.

In a decentralized network like Bitcoin, however, every single participant needs to perform this task, which is done through the Blockchain, i.e., a public ledger of all the transactions that have ever happened within the network and it is available to everyone. Thus, everyone in the network can view the balance of every account. Every transaction is a file where the sender’s and recipient’s public keys, or wallet addresses are contained and the number of coins transferred is also recorded. The transaction must also be signed off by the sender with his or her private key. After confirmation, the transaction is broadcasted on the network.

All cryptocurrency networks rest on the absolute consensus of all participants, with regard to the legitimacy of all transactions and balances. If nodes of the network disagree on even a single balance, the system would break down and become dysfunctional, but there are a lot of pre-built rules and regulations which are programmed into the network in order to prevent such an event from happening. Cryptocurrencies are named such since the process of consensus-guarding is protected and secured with strong cryptography. The security factor coupled with all the other provisions makes the concepts of third parties and blind trust redundant in a system.

What are the functions performed by cryptocurrency?
•Cryptocurrencies can be used to purchase goods and services. There are a lot of merchants who accept Bitcoin as a mode of payment, both online as well as offline. Apple has authorized 10 different cryptocurrencies as valid modes of payment on the App Store.

•Cryptocurrencies are considered to be among the best investment opportunities of today. Many individuals and organizations have become millionaires through Bitcoin investments. The price of one Bitcoin exceeded $7,000 in November 2017. However, it must be noted that these are high-risk investments.

•Cryptocurrencies can be accepted as a valid mode of payment, as already mentioned above. They share the same status as cash. A number of crypto-ATM machines have been built all over the world.

•The mining of cryptocurrencies is a profitable investment. Miners are an essential part of a cryptographic network, and they contribute their computing skills to solve complicated cryptographic puzzles, which is a necessary requirement to confirm a transaction and record it in a distributed public ledger – the Blockchain.

What is the issue surrounding the legal status of cryptocurrency?
With cryptocurrencies becoming increasingly mainstream, organizations such as law enforcement agencies, tax authorities, legal regulators and numerous others around the globe are trying to understand the idea of crypto coins and where and how they fit in the existing legal structures and regulations. The introduction of Bitcoin, the first-ever cryptocurrency, created a completely new paradigm in this context. Decentralized, self-sustained digital currencies which don’t exist in any physical form and are not controlled by any particular entity or party will obviously cause an uproar among all regulators, and a number of concerns have been raised regarding the decentralized nature of cryptocurrencies and their chances of being used (almost) completely anonymously.

Legal authorities all over the world are in doldrums about the lucrative nature of cryptocurrencies that might appeal to traders of various illegal goods and services, the use of cryptocurrency in money laundering, tax evasion, and other illegal schemes and activities. Bitcoin and other digital currencies are outlawed only in the following countries: Bangladesh, Bolivia, Kyrgyzstan, Vietnam, and Ecuador. Countries like China and Russia are considering a complete ban on all cryptocurrencies as well. The usage of cryptocurrencies has not been made illegal as yet by other jurisdictions, however, laws surrounding their usage varies from country to country.

Cryptocurrency in India
According to the latest reports, the Indian government is in the final stages of formulating regulations on cryptocurrencies, according to an RTI response from the Department of Economic Affairs. There have been several rumors that the government may term cryptocurrencies as 'illegal', the response suggests that the government is still working on it.

The Ministry of Finance in December 2018 had said that the inter-ministerial committee is tasked with analyzing all aspects of crypto assets and is developing a suitable crypto regulatory framework. A panel was set up in December 2017 headed by Subhash Chandra Garg, Secretary, Department of Economic Affairs, to examine a framework for regulating cryptocurrencies. As of now, cryptocurrencies are legal in India unless the government mentions otherwise.




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