Pros and Cons of Cryptocurrency for India

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Cryptocurrency

A fully decentralised, peer-to-peer electronic cash system that does not need the purview of any third-party financial institution. 
It started with Bitcoin which was created by Satoshi Nakamoto in 2008 as a response to the lack of trust in the existing banking system during the 2008 global financial crisis.

PROS

CONS

tamper-proof ledgersvolatility and fluctuations
verification of transactions and contractsisn’t backed up by a sovereign state and a public institution like a central bank (RBI)
updating and maintenance of records  poses a threat to financial stability
Integrating blockchain technology into financial sector would help increase savings worth billions of dollars

These tasks of blockchain technology are usually done by financial institutions/banks which take a fee for their service. At the moment, intermediaries (including banks, credit card and payment gateways) draw almost 3 per cent from the total global economic output of over $100 trillion, as fees for their services. Integrating blockchain into these sectors could result in hundreds of billions of dollars in savings.
can be used for illegal activities - possible misuse
blockchain technology would give a push to e-governance, judicial and electoral processes more efficient and transparentpossible frauds/scams
increase in innovation and investmentsunregulated

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021

  • to prohibit all private cryptocurrencies and lay down the regulatory framework for the launch of an “official digital currency”
  • i.e RBI will launch central bank digital currency (CBDC)
  • Benefits
    • no volatility/fluctuations
    • backed and regulated by RBI
    • financial stability
    • checks on its misuse
  • Shortcomings
    • cryptocurrency are supposed to be decentralized (but here it is being centralized),
    • is trying to decouple cryptocurrencies from their underlying blockchain technology, and still derive benefits such as transparency, efficiency, savings in financial sectors, etc.


RBI had said central banks are exploring DLT (Distributed Ledger Technology) for application in improving financial market infrastructure, and considering it as a potential technological solution in implementing central bank digital currency (CBDC)

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