Cryptocurrency UPSC, crypto definition, advantages, and disadvantages.
A cryptocurrency is a digital/virtual form of currency that is secured by cryptography. This makes it next to impossible to counterfeit. Various cryptocurrencies work as decentralized networks that are based on blockchain technology.
A cryptocurrency or crypto is a virtual currency secured by cryptography. It is designed to work as a medium of exchange, where individual investor records are stored in a computerized database.
The so defining trait or feature of cryptocurrency is that they are not issued by a government agency or any country so there is no interference and manipulation from them.
Latest Developments regarding Cryptocurrency in India – The Cryptocurrency and Regulation of Official Digital Currency Bill 2021 are likely to be introduced in the winter session of the Parliament. It is a bill that would regulate Cryptocurrency in India. On December 7, 2021, Finance minister Nirmala Sitharaman asserted that the proposed Central Bank Digital Currency will not boost cryptocurrency in India. This article will further discuss the details of cryptocurrency within the context of the Civil Services Examination.
Simply, cryptocurrency is a digitalized asset spread through multiple computers in a shared network. The decentralized nature of this network prevents them from any control from government regulatory measures.
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The term “cryptocurrency in itself is derived from the encryption techniques used to secure the network.
As per computer experts, any system that falls under the category of cryptocurrency must meet the following requirements.:
- The absence of any centralized authority is maintained through distributed networks
- The system maintains records of cryptocurrency units and who owns them
- The system decides whether new units can be created and in case it does, decides the origin and the ownership terms
- Ownership of cryptocurrency units can be proved exclusively cryptographically.
- The system allows transactions to be performed in which ownership of the cryptographic units is changed.
Then what are the various types of cryptocurrencies:
The very first type of cryptocurrency was bitcoin, which to this day is the most used, most valuable, and popular of the coins. It was created by Satoshi Nakamoto in 2009.
As of March 2021, there were over 18.6 million bitcoins in circulation with a total market cap of around $927 billion.
The competing cryptocurrencies that were created as a result of Bitcoin’s success are known as altcoins. Some of the well-known altcoins are as follows:
- Litecoin
- Peercoin
- Namecoin
- Ethereum
- Cardano
Today, the aggregate value of all the cryptocurrencies in existence is around $1.5 trillion—Bitcoin currently represents more than 60% of the total value.3.
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cryptocurrency has the following advantages
- Modern cryptocurrency systems come with a user “wallet” or account address which is accessible only by a public key and pirate key. The private key is only known to the owner of the wallet
- Funds transfers are completed with minimal processing fees.
- Funds transfer between two parties will be easy without the need for third parties like credit/debit cards or banks
- It is a cheaper alternative compared to other online transactions
- Payments are safe and secured and offer an unprecedented level of anonymity
Cryptocurrencies have the following disadvantages.
- The almost hidden nature of cryptocurrency transactions makes them easy to be the focus of illegal activities such as money laundering, tax evasion and possibly even terror-financing
- Payments are not irreversible
- Cryptocurrencies are not accepted everywhere and have limited value elsewhere
- There is concern that cryptocurrencies like Bitcoin are not rooted in any material goods. Some research, however, has identified that the cost of producing a Bitcoin, which requires an increasingly large amount of energy, is directly related to its market price.
- How does Cryptocurrency work?
- A cryptocurrency (or “crypto”) is a digital currency that can be used to buy goods and services but uses an online ledger with strong cryptography to secure online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving prices skyward.
- How is money made from cryptocurrency?
- The most common way of earning money from cryptocurrencies is buying coins such as Bitcoin, Litecoin, Ethereum, Ripple, and more and waiting until their value rises. Once their market prices rise, they sell at a profit.
- What is the main appeal of cryptocurrency technology?
- Central to the appeal and functionality of Bitcoin and other cryptocurrencies is blockchain technology, which is used to keep an online ledger of all the transactions that have ever been conducted, thus providing a data structure for this ledger that is quite secure and is shared and agreed upon by the entire network of an individual node, or computer maintaining a copy of the ledger.
Cryptolifedigital is a cryptocurrency blogger and analyst known for providing insightful analysis and commentary on the ever-changing digital currency landscape. With a keen eye for market trends and a deep understanding of blockchain technology, Cryptolifedigital helps readers navigate the complexities of the crypto world, making informed investment decisions. Whether you’re a seasoned investor or just starting out, Cryptolifedigital’s analysis offers valuable insights into the world of cryptocurrency.
