CRYPTOCURRENCIES
Cryptocurrencies have diversified considerably since the advent of Bitcoin, with thousands of different cryptocurrencies available today. These cryptocurrencies fall into several categories based on their features, functionalities, and underlying technologies. Some of the primary types include:
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Bitcoin and Bitcoin-Like: Bitcoin, the first cryptocurrency, serves as a model for many other digital currencies. These cryptocurrencies, often referred to as altcoins, share similarities with Bitcoin in terms of their decentralized nature and proof-of-work consensus mechanism. Examples include Litecoin (LTC), Bitcoin Cash (BCH), and Bitcoin SV (BSV).
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Smart Contract Platforms: These cryptocurrencies offer more than simple digital currency transactions. They enable the creation and execution of smart contracts, self-executing contracts with the terms of the agreement directly written into code. Ethereum (ETH) is the most prominent example, while others like Cardano (ADA), Solana (SOL), and Binance Smart Chain (BNB) also fall into this category.
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Privacy Coins: Designed to provide enhanced privacy and anonymity for transactions, privacy coins utilize advanced cryptographic techniques to shield transaction details. Monero (XMR), Zcash (ZEC), and Dash (DASH) are some examples known for their privacy features.
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Stablecoins: Cryptocurrencies pegged to the value of traditional assets like fiat currencies or commodities to mitigate price volatility. Tether (USDT), USD Coin (USDC), and Dai (DAI) are popular examples that aim to maintain a stable value.
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Utility Tokens: These tokens operate within specific ecosystems and grant access to goods, services, or functions within a project or platform. They are not intended as traditional currencies. Examples include Binance Coin (BNB), used within the Binance ecosystem, or Filecoin (FIL), providing access to decentralized storage.
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Non-Fungible Tokens (NFTs): NFTs are unique digital assets representing ownership or proof of authenticity of a specific item or piece of content, often related to art, collectibles, gaming, or real estate. Ethereum-based tokens, such as CryptoKitties or digital art on platforms like OpenSea, are well-known examples.
Cryptocurrencies come with a set of advantages and disadvantages:
Advantages:
- Cryptocurrencies operate on decentralized networks, reducing reliance on central banks or governments. This decentralization potentially offers more financial sovereignty to users.
- Cryptocurrencies use cryptographic techniques that make transactions secure and hard to counterfeit. The blockchain ledger system ensures transparency and immutability of transactions
- Cryptocurrencies enable financial transactions for individuals who might not have access to traditional banking services. They offer a borderless and accessible financial system.
- Compared to traditional banking and financial systems, cryptocurrency transactions often come with lower fees, especially for international transactions
- The technology behind cryptocurrencies, particularly blockchain, has the potential to revolutionize various industries beyond finance, including supply chain, voting systems, and more.
Disadvantages:
- Cryptocurrency markets are highly volatile. Prices can fluctuate significantly within short periods, leading to investment risks and potential financial losses
- The lack of clear regulations and oversight in many regions creates uncertainty for users, investors, and businesses dealing with cryptocurrencies
- While blockchain technology is secure, the ecosystem around cryptocurrencies faces security threats such as hacking, scams, and theft due to vulnerabilities in exchanges or wallets
- Unlike traditional banking, cryptocurrency transactions may not have the same level of consumer protections, such as insurance or recourse for lost funds
- Some cryptocurrencies, like Bitcoin, require substantial computational power for mining, leading to concerns about their environmental impact due to high energy consumption
- Despite growing popularity, widespread adoption of cryptocurrencies for everyday use is hindered by technical complexities, usability issues, and lack of acceptance by mainstream institutions
The Securities and Exchange Board of India (SEBI) has announced it is planning to bring cryptocurrency exchanges under its regulatory framework. The move could help to protect and legitimize the crypto market in India.
The Indian crypto market has been growing rapidly in recent years, with an estimated 15 to 20 million investors. However, the market has also come under scrutiny from regulators, amid concerns about money laundering, fraud, and market manipulation.
SEBI’s announcement is a significant step in India’s efforts to regulate the crypto market. The regulator is likely to focus on setting up guidelines for cryptocurrency exchanges, as well as implementing measures to prevent money laundering and market manipulation.
The move is likely to be welcomed by cryptocurrency exchanges, which have been operating in a regulatory gray area in India. Exchanges will need to comply with SEBI’s regulations in order to continue operating in the country.
It is not yet clear how SEBI’s new regulations will affect the Indian crypto market. However, the move is likely to improve the credibility of the market and help to attract more investors.
The following are some of the potential benefits of SEBI regulating cryptocurrency exchanges in India:
- Increased investor protection: SEBI could help to protect investors from fraud and market manipulation
- Increased market liquidity: SEBI’s regulations could help to increase liquidity in the Indian crypto market, making it easier for investors to buy and sell cryptocurrencies
- Increased institutional investment: SEBI’s involvement could attract more institutional investors to the Indian crypto market.
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MCQs On Cryptocurrency
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Previous Year Questions
1. With reference to “Blockchain Technology”, consider the following statements: (UPSC CSE 2020) 1. It is a public ledger that everyone can inspect, but which no single user controls. 2. The structure and design of the blockchain are such that all the data in it are about cryptocurrency only. 3. Applications that depend on the basic features of blockchain can be developed without anybody’s permission. Which of the statements given above is/are correct? A.1 only B.1 and 2 only C.2 only D.1 and 3 only Answer (D) |
