With discussions around banning 'private' cryptocurrencies, it has been brought under tax net in the latest budget. Currently it s in a 'grey zone' as there is no legal backing or ban. However, existing laws (like anti-money laundering, cheating) are applicable.
Cryptocurrencies are a digital form of money that represent financial freedom and privacy. Unlike traditional currencies, they are not issued by central banks. They also aren't controlled by any individual or institution and are instead governed by a code. They enable secure transactions free from government or corporate influence. Due to encryption, it is not possible to issue counterfeit currency or double-spend.
To invest in Crypto, we can open an account with a crypto exchange by submitting KYC details online. The investment process is similar to buying stocks on online platforms. Most cryptocurrencies don't have any intrinsic value. Five years ago, the value of 1 Bitcoin was about $1,000. Now, it is near the $37,000 level - a rise of 3,600% However, it has been a rollercoaster ride with many crashes over the years. Demand and supply competition, and regulation are some factors that determine the value of cryptocurrencies. Though there is no central authority, it is controlled. Bitcoin has been designed to have a limit of 21 million and the rate of generation is also pre-decided - the last Bitcoin is set to be mined in the year 2140. Other cryptocurrencies have their own rate of supply. Bitcoins finite nature has led to it being called an anti-inflation hedge.
Bitcoins are the biggest cryptocurrency in terms of market cap and also the oldest. Other cryptocurrencies are termed.
Different sides of coins are:
Altcoins or alternative coins. Cryptocurrencies linked to an asset like gold or dollar are called Stablecoins as they are less volatile.
Blockchain is a decentralised public ledger tech, which is the base for crypto. Process through which block chain transactions are verified and new tokens created is called mining.
CBDC is the legal tender - Digital currency issued by Central Bank.
NFTs or Non fungible tokens are cryptocurrencies that are mostly used as certificates of ownership of digital assets like art, audio or photos.
Crypto threatens state control over monetary policy. Regulators feel private currency will erode public trust in money and lead to financial instability. In India, the RBI has called for a full ban on crypto as partial restrictions won't be effective. Some countries are developing legal frameworks to treat crypto as assets and not modes of payment. Most people are acquiring crypto as an asset and not for payments. They are speculating that it will appreciate as the value of fiat currency deteriorates due to excess supply. Investors see it as a high-risk, high-reward opportunity.
Crypto payments are enabled by a decentralised computer network, where those who verify the transaction suing cryptography are rewarded with tokens. However, avenues to spend crypto are limited. El Salvador is the only country where it has legal tender status as of today. Last year, Tesla had announced it would accept payments in certain cryptocurrencies. The first Bitcoin payment was made to buy pizza in 2010. The bill worth $40 was paid using 10,000 Bitcoins, which would be worth $370 million today.
To remove third-party risks, cryptocurrencies use a trust-less computer network. The identities of the two parties are not disclosed but their transaction is recorded and verified publicly.
No comments:
Post a Comment