What are Digital Currencies? And Why Does the Centre Want to Regulate them?
By: NH Desk
A digital currency (or cryptocurrency) is a medium of exchange, like any other paper currency like the Rupee or the Euro. Still, unlike traditional currencies, they are privately owned, digital in format, and use encryption technology to control the creation of these monetary units and verify their exchange.
Unlike flat currencies, whose validity is usually ensured by a government-controlled central bank, digital currencies are guaranteed by a network of privately owned computers working towards authenticating the transactions by solving complex cryptographic puzzles. For solving these, the networks are rewarded with cryptocurrencies. This process is known as mining, and the technology that maintains mining data is called the blockchain.
Bitcoin is considered the world’s best-known cryptocurrency and is the largest globally, followed by Ethereum.
In recent weeks, discussions about cryptocurrency have been the talk of the town in Delhi. They were the subject of a prime ministerial meeting, a statement by the Reserve Bank of India governor, and even got featured in a barrage of advertisements during cricket matches. Then, on November 23 came the news that the Lok Sabha is set to table a draft legislation on unregulated digital currencies.
There has been a great deal of speculation about whether the law, whose bill is supposed to be tabled in front of the Lok Sabha this winter session, will prohibit cryptocurrencies or merely attempt to regulate them.
According to the Lok Sabha bulletin, listing the agenda for the winter session, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. aims “to create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India.”
The Bill also seeks to prohibit all private cryptocurrencies in India,” it added, “However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”
Officially, this is all that is known about the bill. But reports have speculated about what it could contain. Some suggest that while the government might not favour an outright ban, the Reserve Bank of India is. Some reports say that a few cryptocurrencies may be allowed and that cryptocurrency gains may be heavily taxed.
Supporters of cryptocurrency say that digital currencies lower the cost of transactions and bring more transparency to the financial system. But sceptics say they are wary about the lack of governmental control over such instruments and could be used to finance illegal activities.
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