A cryptocurrency (or "crypto") is a digital currency that can be used to purchase goods and services, but it employs an online ledger and strong cryptography to secure online transactions. Much interest in these unregulated currencies is in profit trading, with speculators sometimes soaring prices.
Cryptocurrency is a payment for goods and services that can be swapped online. Many companies have issued own currencies, often alluded to as tokens, which can specially be traded for goods or services provided by the company. Think about them like you are arcading casino trinkets or chips.
Bitcoins is the most renowned cryptocurrency but apart from that Ethereum (ETH) , Litecoin (LTC) ,Cardano (ADA), Polkadot (DOT), Bitcoin Cash (BCH), Chainlink, Binance Coin (BNB) are also in the market [i].
How does a Cryptocurrency work ?
Blockchain is a technology that undergirds cryptocurrency. It's nothing more than a sophisticated record-keeping system that's run decentralised by a group of users.
When a Bitcoin is exchanged, a block of data (an alphanumeric code that represents the cryptocurrency, it's quantum, and its value) is created and distributed to all computers (or nodes) connected to the network. Anticipate this block to be an accumulation of such transactions. Once this block has been verified, a formal record is cached in the decentralised database for everyone (on that network) to see. When that same Bitcoin is sought to be sold again, a new block is created. The preceding transaction (or block) is not deleted. The new block is connected to the old block to form a chain (hence the term blockchain) that everyone can see. Because of this procedure of record keeping, the transaction cannot be reversed.
Why are Cryptocurrency Popular ?
1. Cryptocurrencies such as Bitcoin are seen as the currency of the future, and supporters are leaping to purchase them now, presumably before they become more valuable.
2. Some supporters like the fact that cryptocurrency removes central banks from managing the money supply, because these banks tend to undervalue money over time through inflation.
3. Others support the blockchain technology that underpins cryptocurrencies because it is a centrally controlled processing and recording system that can be more secure than traditional payment methods.
4. Some speculators like cryptocurrencies because their value is starting to rise, but they are unwilling to engage in the currencies' long-term acceptance as a means of transferring funds.
Status of Cryptocurrency in India :
After months of deliberation over whether to legalise or prohibit cryptocurrencies, the Indian government has taken an encouraging step toward regulating digital currencies in India. The Ministry of Corporate Affairs (MCA) has made it mandatory for businesses to disclose their cryptocurrency trading/investments during the fiscal year. Experts see it as a positive step and anticipate that the taxation rules will be implemented. This is regarded as the first step in regulating cryptocurrencies in India.
Legal Status -
In India, cryptocurrencies are not illegal. So, if you want to buy, say, Bitcoins, you can do so and begin trading in them. However, India currently lacks a regulatory framework to govern cryptocurrencies. On November 2, 2017, the government formed an Inter-Ministerial Committee (IMC) to evaluate virtual currencies. The Group's report, which included a Draft Bill, highlighted the benefits of distributed-ledger technology and suggested several applications, particularly in financial services, for its use in India, including banks and other financial firms.
However, the Centre expressed concerns about its misuse and proposed a blanket ban in India. According to recent reports, cryptocurrency may not be completely prohibited in India. The Centre may soon form a panel to oversee them. The decision was made after several cryptocurrency exchanges urged the Centre to regulate cryptocurrencies rather than outright ban them.
Recent Laws on Cryptocurrency -
The Indian government is currently considering the introduction of a new bill titled “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” (the “New Bill”), which, whilst still similar in spirit to previous versions, intends to ban private cryptocurrencies in India with certain exceptions in order to promote the underlying technology and trading of cryptocurrency and provide a framework for creating new cryptocurrencies. The New Bill acknowledges the grey area of cryptocurrency laws and proposes to ban all private cryptocurrencies in their entirety; however, there is still a grey area in which all types of cryptocurrency will come under the umbrella of the private cryptocurrencies.
The RBI has issued a warning to the general public about the potential misuse of private cryptocurrencies in a variety of ways. However, if the New Bill imposes a complete ban on private cryptocurrencies, cryptocurrency investors will be advised to engage and trade in unfettered market. Furthermore, the goal of enacting a virtual currency/ cryptocurrency law is to simplify the process of trading and holding in a safer technological environment. However, even with the introduction of state-owned cryptocurrency that will be regulated by the RBI, the risk factor involved in cryptocurrency investment and holding will remain the same.
Amendments regarding the Cryptocurrency -
In the last week of March 2021, according to the latest amendments to the Schedule III of the Companies Act, 2013, the Government of India has directed that from the newly begun financial year, the companies to disclose their investments in cryptocurrencies. That is, companies must now disclose profit or loss on cryptocurrency/virtual currency transactions, the amount retained, and details of deposits or advances from any person for the purpose of trading or investing in cryptocurrency/virtual currency. This particular move has been welcomed with open arms by those participating in the crypto sector, as it is understood that it will allow all Indian companies to have cryptocurrency on their balance sheets.
Further, In the short term, the Gujarat International Finance Tec-City can provide a welcoming environment for participants from home and abroad to congregate, exchange ideas, and develop enterprise use cases of digital assets within a supportive legal framework for digital asset service providers. This ensures that services are tried and tested before they are considered for wider market adoption[ii].
In the long run, a regulatory body such as the Securities and Exchange Board of India (SEBI) may be well suited to authorisation, regulate, and supervise digital asset service providers, eventually implementing a conducive regulatory framework for digital assets by amending specific financial sector laws.
Protecting cryptocurrencies and coins from Hackers and Theft;
Your cryptocurrency is unlikely to be directly hacked due to the nature of the blockchain technology upon which most cryptocurrencies are built. However, in order to buy or sell it, you must use a cryptocurrency exchange[iii]. And to keep it, you'll need either an exchange or a wallet. Furthermore, these accounts are more vulnerable to hackers.
To protect yourself from such vulnerability one should :
1. Create a strong password
2. Ensure to activate two-factors Authentication
3. Keep your cryptocurrencies off from exchange
4. Invest in a cryptocurrency wallet
Because, It is extremely unlikely that you will be able to recover your stolen virtual currency. In theory, you can track your stolen bitcoin by monitoring the blockchain; in practise, however, this is difficult due to the currency's anonymity and the fact that the thief will most likely use a bitcoin exchange to exchange the currency for regular cash right away. Money, on the other hand, leaves a trail, and you may be able to follow it to the criminal's identity. Even if you successfully trace the currency using public ledgers, because most cryptocurrency is decentralised, there aren't many paths you can take to get it back[iv].
[i]Chu, Dennis. “BROKER-DEALERS FOR VIRTUAL CURRENCY: REGULATING CRYPTOCURRENCY WALLETS AND EXCHANGES.” <i>Columbia Law Review</i>, vol. 118, no. 8, 2018, pp. 2323–2360. <i>JSTOR</i>, www.jstor.org/stable/26542511. Accessed 18 Aug. 2021.
[ii]Badev, A., Chen, M. (2014). Bitcoin: Technical background and data analysis (Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C., (2014-104)).
[iii]Harwick, Cameron. “Cryptocurrency and the Problem of Intermediation.” <i>The Independent Review</i>, vol. 20, no. 4, 2016, pp. 569–588., . Accessed 18 Aug. 2021.
[iv]“CRYPTOCURRENCY MARKETPLACES HIT BY CYBER ATTACKS.” <i>Computer Security Update</i>, vol. 19, no. 3, 2018, pp. 4–7.