Cryptocurrency: The Future Of Digital Money

Published on 05 Jul 2017 by Team

Today cryptocurrencies have become a global phenomenon known to most people. While still somehow geeky and not understood by most people, banks, governments and many companies are aware of its importance.In 2016, you‘ll have a hard time finding a major bank, a big accounting firm, a prominent software company or a government that did not research cryptocurrencies, publish a paper about it or start a so-called blockchain-project.

Invention of Cryptocurrencies

Few people know, but cryptocurrencies emerged as a side product of another invention. Satoshi Nakamoto, the unknown inventor of Bitcoin, the first and still most important cryptocurrency, never intended to invent a currency.In his announcement of Bitcoin in late 2008, Satoshi said he developed “A Peer-to-Peer Electronic Cash System.“  His goal was to invent something; many people failed to create before digital cash.

The single most important part of Satoshi‘s invention was that he found a way to build a decentralized digital cash system. In the nineties, there have been many attempts to create digital money, but they all failed.

After seeing all the centralized attempts fail, Satoshi tried to build a digital cash system without a central entity. Like a Peer-to-Peer network for file sharing.This decision became the birth of cryptocurrency. They are the missing piece Satoshi found to realize digital cash. The reason why is a bit technical and complex, but if you get it, you‘ll know more about cryptocurrencies than most people do.

21st Century Unicorn or The Money of the Future!

Bitcoins is a cryptographic currency and a digital payment system online. This means Bitcoin uses coding to secure the various transactions that take place between users and thus provide with a secure medium of exchange. Most of the currencies in the world at present, including the reserve currencies, are fiat currencies.

The term ‘fiat currencies’ refers to currencies that are issued by a government, and the government promises to pay the holder of such currencies an equivalent amount of gold if needed. Thus, these currencies usually have a central regulatory body which issues them, and are consequently called ‘centralized’.

Whereas the thing about Bitcoins is that it doesn’t involve any middle man during transactions, thus making it the world’s first decentralised digital currency. As Satoshi Nakamoto, the creator of Bitcoin puts it – “an electronic cash system”

Cryptocurrency in India

In the Indian scenario, it can be observed that the Bitcoin users are increasing day by day and special enthusiasm has been shown by entrepreneurs for the same. The reserve bank of India has not been able to come out with a final verdict regarding its position towards such digital currency, however, it has warned the users of such currency about exposing themselves to legal, financial and security risks over time. The principal laws in India concerning Bitcoin are as follows:

  • The Constitution of India, 1950
  • The Foreign Exchange Management Act, 1999
  • The Reserve Bank of India Act, 1934
  • The Coinage Act, 1906
  • The Securities Contracts (Regulation) Act, 1956
  • The Sale of Goods Act, 1930
  • The Payment and Settlement Systems Act, 2007
  • Indian Contract Act, 1872

Despite these Indian laws having a direct incidence on Bitcoins and its regulation in the financial system, no law has been passed by the Indian legislature which out rightly bans the use of Bitcoins. So, what can be said about the position of Indian laws on Bitcoins is that it is completely silent on the issue or neutral.

Various governments around the world are now experimenting with this fascinating medium of exchange but are really concerned about their regulation because the technology itself eliminates the presence of third-parties (usually the government and banks, as in the case of fiat money) and thus increases the chances of mishaps such as cyber-attacks, identity theft etc.

Reserve Bank of India frowned upon cryptocurrencies

The RBI has reportedly asked a group of experts to look into fiat cryptocurrency, which is basically a digital currency that could serve as an alternative to the Indian rupee. According to sources, however, the country’s central banking institution still not comfortable with non-fiat cryptocurrencies like Bitcoin.

RBI executive director Sudarshan Sen stated, “Right now, we have a group of people who are looking at fiat cryptocurrencies. As regards to non-fiat crypto currencies like Bitcoins, I think we are not comfortable with them.”

At present, the Reserve Bank of India regards cryptocurrencies as a violation of the country’s existing foreign exchange norms. This is because the conversion of Bitcoins into foreign exchange does not currently fall under the purview of the central banking institution, making such transactions highly unsafe and vulnerable to cyber attacks.

Indian Goverment still unsure about legalising Cryptocurrency

In March 2017, the Reserve Bank of India (RBI) issued a statement against the usage of encrypted money like Bitcoin. The Central Bank also warned users, holders, and traders of security concerns surrounding Bitcoin or any other virtual currencies.

A month later, the country’s Finance Ministry announced "the formation of a special committee that would be suggesting measures for minimising security breaches and vulnerabilities related to the use of cryptocurrencies". The committee’s report carried the following points:

  • Bitcoins would fall under the purview of RBI’s 1934 Act.
  • Bitcoin investors should be taxed.
  • The RBI would have to issue guidelines regarding investment and purchase of Bitcoins.
  • If any foreign payment is made through Bitcoins, it would fall under the purview of FEMA Act.
  • Returns from investment in Bitcoins need to be taxed.

In June, it was reported that the government may be inching closer to legalising virtual currencies in India.

Later in July, the Indian government was reportedly mulling over the implementation of Know Your Customers (KYC) Norms to ensure safe transactions of cryptocurrencies.

India’s Cryptocurrencies Continue To Thrive Despite Unregulated Status

As per a 2016 report, India boasts more than 50,000 Bitcoin wallets. Of these, 700-800 Bitcoins are operated daily. Over the last few years, a number of startups, such as Zebpay, Coinsecure, and Unocoin, have sprung up in the cryptocurrency space. The domain has already witnessed an increase in funding opportunities in the last year or so.

Cryptocurrencies- Dawn of a New Economy

Mostly due to its revolutionary properties cryptocurrencies have become a success their inventor, Satoshi Nakamoto, didn‘t dare to dream of it. While every other attempt to create a digital cash system didn‘t attract a critical mass of users, Bitcoin had something that provoked enthusiasm and fascination. Sometimes it feels more like religion than technology.

Cryptocurrencies are digital gold. Sound money that is secure from political influence. Money that promises to preserve and increase its value over time. Cryptocurrencies are also a fast and comfortable means of payment with a worldwide scope, and they are private and anonymous enough to serve as a means of payment for black markets and any other outlawed economic activity.

While Bitcoinsremains by far the most famous cryptocurrency and most other cryptocurrencies have zero non-speculative impact, investors and users should keep an eye on several cryptocurrencies. Here we present the most popular cryptocurrencies of today.

Bitcoin

The one and only, the first and most famous cryptocurrency. Bitcoin serves as a digital gold standard in the whole cryptocurrency-industry, is used as a global means of payment and is the de-facto currency of cyber-crime like darknet markets or ransomware. After seven years in existence, Bitcoin‘s price has increased from zero to more than 650 Dollar, and its transaction volume reached more than 200.000 daily transactions.

Ethereum

The brainchild of young crypto-genius Vitalik Buterin has ascended to the second place in the hierarchy of cryptocurrencies. Other than Bitcoin its blockchain does not only validate a set of accounts and balances but of so-called states. This means that Ethereum can not only process transactions but complex contracts and programs.

Ripple

Maybe the less popular – or most hated – project in the cryptocurrency community is Ripple. While Ripple has a native cryptocurrency – XRP – it is more about a network to process IOUs than the cryptocurrency itself. XRP, the currency, doesn‘t serve as a medium to store and exchange value, but more as a token to protect the network against spam.

Banks, however, seem to like Ripple. At least they adopt the system at an increasing pace.

Litecoin

Litecoin was one of the first cryptocurrencies after Bitcoin and tagged as the silver to the digital gold bitcoin. Faster than bitcoin, with a larger amount of token and a new mining algorithm, Litecoin was a real innovation, perfectly tailored to be the smaller brother of bitcoin. “It facilitated the emergence of several other cryptocurrencies which used its codebase but made it, even more, lighter“. Examples are Dogecoin or Feathercoin.

Monero

Monero is the most prominent example of the cryptonite algorithm. This algorithm was invented to add the privacy features Bitcoin is missing. If you use Bitcoin, every transaction is documented in the blockchain and the trail of transactions can be followed. With the introduction of a concept called ring-signatures, the cryptonite algorithm was able to cut through that trail.

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