UPSC CSE 2021 Main GS Paper 1
Question - What is cryptocurrency? How does it affect global society? Has it been affecting Indian society also?
Answer
Cryptocurrency is a form of digital or virtual currency that uses cryptography for security. Unlike traditional fiat currencies issued and regulated by governments, cryptocurrencies operate on decentralized networks based on blockchain technology. Blockchain is a distributed ledger that records all transactions across a network of computers, ensuring transparency and security.
The most well-known cryptocurrency is Bitcoin, but there are thousands of other cryptocurrencies, each with its unique features and purposes.
How Cryptocurrency Affects Global Society:
1. Financial Inclusion: Cryptocurrencies offer financial services to unbanked and underbanked populations, providing them with access to a global financial system without the need for traditional banks. This has the potential to promote financial inclusion and reduce economic disparities.
2. Cross-Border Transactions: Cryptocurrencies enable fast and low-cost cross-border transactions without the need for intermediaries like banks. This has the potential to facilitate international trade and remittances.
3. Decentralization and Trust: The decentralized nature of cryptocurrencies reduces reliance on centralized financial institutions, giving individuals greater control over their finances and reducing the risk of government interference or censorship.
4. Technological Innovation: The development of cryptocurrencies has driven technological innovation, particularly in blockchain and cryptography, which has applications beyond the financial sector.
5. Challenges for Regulation: The emergence of cryptocurrencies has posed challenges for regulators worldwide. The decentralized and pseudonymous nature of transactions can facilitate illegal activities like money laundering and tax evasion.
Impact on Indian Society:
Cryptocurrencies have been gaining popularity in India, and their impact on Indian society can be observed in several ways:
1. Investment and Speculation: Many Indians have invested in cryptocurrencies as a means of potential high returns. Cryptocurrency trading has grown significantly, drawing interest from investors seeking to diversify their portfolios.
2. Remittances: Cryptocurrencies have been used to facilitate cross-border remittances in India, offering a potentially cheaper and faster alternative to traditional remittance services.
3. Regulatory Uncertainty: India has had a mixed regulatory approach towards cryptocurrencies. The government has expressed concerns about their potential risks and has, at times, considered banning them altogether. This regulatory uncertainty has affected cryptocurrency businesses and investors in the country.
4. Financial Inclusion: Cryptocurrencies have the potential to promote financial inclusion in India, especially in rural areas where access to traditional banking services is limited.
5. Tech Startups: The rise of cryptocurrencies has led to the emergence of Indian cryptocurrency startups exploring blockchain-based solutions and technologies.
6. Consumer Protection: Cryptocurrency investments carry risks due to their volatility, and some instances of scams and fraud have occurred, affecting Indian investors.
7. Taxation: A new tax on crypto in India has been implemented with the aim of regulating cryptocurrency transactions and ensuring they are subject to taxation. According to this law, any income earned from the transfer of virtual digital assets will be subject to a 30% tax rate. Additionally, a 1% tax will be deducted at the source (TDS) for such transfers.
It is essential to recognize that the cryptocurrency landscape is continually evolving, and its long-term impact on global and Indian societies will depend on how it is adopted, regulated, and integrated into existing financial systems. While cryptocurrencies offer exciting possibilities, they also present challenges that need to be addressed to ensure their responsible and beneficial use.