The idea of a peer-to-peer electronic cash system, sometimes known as a cryptocurrency, initially surfaced in a paper written under the pseudonym Satoshi Nakamoto.
Investments were previously restricted to stocks, bank accounts, gold, real estate, and other illiquid assets. A fresh class of investments has gained popularity recently: cryptocurrencies. Everyone wants a piece of these digital assets because they promise to upend monopolised financial systems and have provided investors with outstanding returns.
The idea of a peer-to-peer electronic cash system, known as Bitcoin, initially surfaced in a paper written in 2008 under the pseudonym Satoshi Nakamoto. The first cryptocurrency in the world, Bitcoin, was used in a transaction for the first time in 2010. The journey of bitcoin across the world and in India has been nothing short of a rollercoaster ride since that day, when 10,000 Bitcoin could be used to purchase two huge pizzas. Let’s follow how Indian investors, particularly millennials and GenZ, incorporated this new asset class into their thinking and portfolios.
Technology Behind Bitcoin
Cryptocurrency is a type of digital money that uses Blockchain technology to encrypt its codes. The currency is protected from counterfeiting through the encryption process. With the exception of El Salvador, cryptocurrencies are now recognised as legal financial assets, which means they have value but cannot be used to exchange for or buy goods just yet. In an interview, Finance Minister Nirmala Sitharaman made it clear that because cryptocurrencies are not issued by a centralised body, they lack the intrinsic value that qualifies them as legal tender. Therefore, cryptocurrency is an asset and not a form of money.
Security of Bitcoin/Cryptocurrency?
Cryptographic proof offers transactions involving digital assets a level of security that is difficult to breach. The majority of the distributed ledger network throughout the internet must verify every transaction that is initiated in the crypto-financial system. In the absence of this, the transaction is declined. Additionally, mining—a method that involves solving challenging algorithms—is used to confirm transactions. Since this method uses a lot of energy, it is expensive and takes a while for anything suspicious to be discovered.
The currency’s supply is constrained since fresh money only enters the economy once blockchain miners approve any transaction. Because more people are becoming aware of the potential of this asset, demand for cryptocurrencies is growing daily. The cryptocurrency market is extremely dangerous and volatile due to the coin’s limited supply and growing demand.
Disadvantages of Bitcoin/Cryptocurrency
- Because bitcoin transactions are virtually completely anonymous, it is simple for them to become the target of illicit activities like money laundering, tax evasion, and maybe even financing for terrorism.
- Payments can be reversed.
- Cryptocurrencies are not widely accepted and have little value outside of their own ecosystem.
- The lack of any tangible assets in cryptocurrencies like Bitcoin raises concerns. However, some study has shown that the price of a Bitcoin is closely correlated with the cost of creating one, which uses a growing amount of energy.
RBI and Cryptocurrency
The concept of cryptocurrency has not yet fully won over the Reserve Bank of India (RBI). It has previously advocated for the outright prohibition of cryptocurrencies. According to a report by the Economic Times, the Central bank expressed scepticism of the figures provided by the cryptocurrency exchange platforms even during the meeting, but added that there were other factors that needed to be considered. A few days prior to the meeting, RBI governor Shaktikanta Das warned that because cryptocurrencies are not subject to central bank regulation, they pose a major threat to all financial systems.
Investors & Cryptocurrency/Bitcoin
The main topic of conversation was how to safeguard investors. The government was briefed by officials of cryptocurrency exchange platforms that there are close to 15 million cryptocurrency investors in the nation who have invested over Rs 600 crore in virtual currencies. The security of investor capital, according to the MPs, is everyone’s top priority.
It’s important to note that the sole purpose of this meeting was to obtain information from all parties concerned.
How does cryptocurrency generate revenue?
Purchasing cryptocurrencies like Bitcoin, Litecoin, Ethereum, Ripple, and others and holding onto them until their value increases is the most typical method of making money using cryptocurrencies. They sell for a profit once their market prices increase.
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