Technology has changed the way people shop, and pay for goods. Customers no longer choose cash, and contactless payments such as Apple Pay, Amazon pay, and Google pay are gaining traction. Consumers can pay for goods at digital registers with a fast wave of their smartphone. Now, a new type of payment system is gaining traction: cryptocurrency.
By now, almost everyone knows about Bitcoin. It was the first cryptocurrency to gain mass acceptance, but others are gaining traction. There are over 2,000 different forms of cryptocurrencies, with new ones being created every day.
What is Cryptocurrency & how it works?
Cryptocurrency is a digital payment system that does not rely on banks for transaction verification. It’s a peer-to-peer system that allows you to send and receive payments from anywhere. Cryptocurrency payments are digital entries to an online database that represent particular transactions, rather than actual money that is carried around and traded in the real world.
The transactions that you make with cryptocurrency funds are registered in a public ledger. A digital wallet is where you keep your cryptocurrency.
The term cryptocurrency comes from the fact that it uses encryption to check transactions. This means that storing and transmitting cryptocurrency data between wallets and public ledgers requires advanced coding. Encryption aims to provide protection and safety.
Technology behind Cryptocurrency
Blockchain technology is commonly used to create cryptocurrencies. The way transactions are stored in “blocks” and time-stamped is defined by blockchain. It’s a lengthy, technical operation, but the end result is a secure digital ledger of cryptocurrency transactions that hackers can’t alter.
Transactions often necessitate a two-factor authentication scheme. To begin a transaction, you might be asked to enter a username and password. Then you may be required to enter an authentication code sent to your cell phone via text message.
Bitcoin has its ups and downs.
There is indeed a grain of truth to the idea that cryptocurrencies are inferior to conventional currency in that they are harder to manage and, or impossible to track, but that does not negate the fact that they are becoming more similar to national currencies but the fears of the Reserve Bank of India Governor Patel were not without cause.
Also, for instance, Bitcoin has performed exceedingly well in its history, concerning the returns it has provided to investors, outperforming any other asset class in the last decade. But no one can say for sure whether or not it will happen.
Issues regarding cryptocurrency
Bitcoin is uncertain
This is something new to be aware of since Bitcoin does not get its value from any assets or profits. There is no intrinsic value an investor would assign to a license; all value is derived from the price they are willing to pay. As a consequence, its price is subject to rapid and constant price changes.
On February 8th, Tesla, an electric car manufacturer, revealed it had purchased 1.5 billion dollars’ worth of Bitcoins, and, which caused the price of Bitcoin to increase dramatically. Then, in a few days, the price of Bitcoin appeared to drop by 10% once news reached the market that it is considered too volatile for regular use as a basis for future comparisons.
People who trade in Bitcoin are not surprised by the volatility of its price. March was the month when the initial spread of the Covid-19 virus on the financial markets started crashing the Bitcoin price, but by the end of the year, it had already reversed it completely.
This kind of uncertainty is clearly threatening to retail investors who have less money to fall back on if it were to push them Aside from Bitcoin, other digital currencies like Ether are also experiencing extreme price fluctuations. The rise and fall of other virtual currencies share common patterns, too.
There is a high degree of uncertainty for all digital currencies, which means they aren’t the best payment method. The exchange of goods and services happens regularly with dramatic frequency and the value of a currency fluctuates rapidly, which could disrupt the economy. If the payment amounts change regularly, buyers and sellers can experience enormous confusion.
Security and money laundering
This is a key reason why the central bank of India is hesitant to expand its involvement in digital currencies, as they appear to provide significant anonymity to investors. The identity of the Bitcoin’s owner is protected by a transparent, public ledger, and is not recorded on the blockchain, which is a publicly distributed one.
This is a source of concern for financial institutions since it is difficult to trace the flow of capital. Thus, in the future, cryptos may be used to facilitate fraudulent transactions or escape payment of taxes.
Another challenge is to the integrity that virtual currency brings with it: of course, but particularly with regards to security. There have been previous cases of digital coins being hacked from various exchanges around the world, but it is hard to do the same to hack the ledger in India because there are significant regulatory measures in place to prevent this.
So, even though Bitcoin continues to beat other asset classes and to have some distinct advantages, there is little hope of regulators ignoring the negative news about cryptocurrencies.
Impact of new bill on cryptocurrencies
A few financial analysts have asserted that investors may lose some of their digital currency gains as a result of the new legislation since they are also already invested in digital currencies like Bitcoin in the country. The Center may follow the advice of the Inter-Ministerial Committee (IMC) and thus private cryptocurrencies will be outlawed. Although the final law is still being worked out, it is unclear whether or not Bitcoin and Ethereum will be included on the list of banned private cryptocurrencies.
Concerns have also existed surrounding whether legislation may provide those in the cryptocurrency the option to exit before it is prohibited from doing so, as well as potentially making it far more difficult to exit the market with paper money or coins.
There is something that needs to be understood about the specific to apply the detailed provisions of the bill, and hence there is a lot of vagueness about the behavior that those who possess or transact in Bitcoin or other cryptocurrencies. Estimates published by the government placed the number of Indians with over $1 billion in cryptocurrency holdings at 70 lakh people.
It is widely believed that the Indian government is moving closer to imposing a total ban on the use of cryptocurrency mining, investments, and trading activities. The service will include cryptocurrencies like Bitcoin as well as others have long as they are approved for incorporation in our financial system.
The government is also considering a state-backed digital currency known as the Reserve Bank of India Digital Currency. Due to the lack of a concrete framework, clear rules, the industry and investors are concerned about the future of virtual currencies in India.
I’m Shiv Kumar, a graduate with a passion for finance, marketing, and technology. My journey into finance started with a desire to understand money management and investing.
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