A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. The word “cryptocurrency” is derived from the encryption techniques which are used to secure the network. A cryptocurrency is a form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities.
Widely seen as a disruption for the traditional banking and financial institutions, cryptocurrencies have gained significant traction over the last half a decade, at the same time creating a regulatory nightmare for banking regulators across the globe. The first decentralized cryptocurrency was Bitcoin, created in 2009. Cryptocurrencies are gaining popularity; they provide privacy protection, cost effectiveness, lower entry barriers; can be used as alternative to banking systems and fiat currencies, open source Methodology and public participation and also immunity to government led financial retribution. Every transaction is transparent, autonomous and secure. A cryptocurrency is different in that its value is derived solely by its supply and demand. The demand for cryptocurrency is driven by consumer trust in the currency as a medium of exchange, which is common to all currencies, and by the demand for a currency that is not subject to government control. Due to these benefits, cryptocurrency started to gain acceptance worldwide. There are numerous markets related to cryptocurrency, mostly referred to as “cryptocurrency exchange”. It is primarily used for selling or purchasing bitcoins using various types of currencies. It is also possible to purchase or buy bitcoins using your local currency similar to any stock trade.
Currently, several crypto leaders and big organizations have selected to invest in Bitcoins heavily. Although, the individuals mostly use the bitcoin for selling and purchasing services and products while keeping their identity confidential.
The acceptability of cryptocurrencies as a legal instrument currently varies from country to country; while some are in the process of formulating laws and measures, others are yet to respond to this disruptive change.The Reserve Bank of India has been keeping a tab on the increasing use of cryptocurrencies and it had issued an advisory in this regard in 2013, cautioning users, holders and traders of virtual currencies about its potential financial, legal and security related risks. The Ministry of Finance also held a public consultation on regulating virtual currencies in May 2017.
The semi-anonymous nature of cryptocurrency transactions makes them well-suited for a host of illegal activities, such as money laundering and tax evasion. However, cryptocurrency advocates often highly value their anonymity, citing benefits of privacy like protection for whistleblowers or activists living under repressive governments. Some cryptocurrencies are more private than others. Cryptocurrencies face criticism for a number of reasons, including their use for illegal activities, exchange rate volatility, and vulnerabilities of the infrastructure underlying them. However, they also have been praised for their portability, divisibility, inflation resistance, and transparency.
The future and further success of cryptocurrencies depends upon the way regulatory frameworks are devised. Different countries have approached this innovation in different ways, and therefore the regulatory environment remains uncertain. The government will have to take considered steps, given the risks from possible use of cryptocurrencies in terror financing, money laundering and tax evasion.