{"id":33717,"date":"2022-12-21T02:54:12","date_gmt":"2022-12-20T21:24:12","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=33717"},"modified":"2025-04-20T00:56:54","modified_gmt":"2025-04-19T19:26:54","slug":"cryptocurrency-and-its-challenges","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/cryptocurrency-and-its-challenges\/","title":{"rendered":"Cryptocurrency and its challenges"},"content":{"rendered":"<h3><strong>What\u2019s in today\u2019s article?<\/strong><\/h3>\n<ul>\n<li><strong>Cryptocurrencies \u2013 about, opportunities, challenges<\/strong><\/li>\n<li><strong>About FTX Scandal<\/strong><\/li>\n<li><strong>News Summary<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Why in News?<\/strong><\/h2>\n<ul>\n<li>RBI governor Shaktikanta Das has said that the next financial crisis will come from cryptocurrencies and that the developments at crypto exchange FTX have vindicated the central bank\u2019s stance.<\/li>\n<li>He made these remarks at a BFSI summit organised by the Business Standard in Mumbai.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>What is a Cryptocurrency?<\/strong><\/h2>\n<ul>\n<li>These are digital or virtual currencies in which encryption techniques are used to regulate the generation of their units and verify the transfer of funds.<\/li>\n<li>These currencies operate independently of a central bank.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Growth of crypto ecosystem presents new opportunities<\/strong><\/h2>\n<ul>\n<li>Technological innovation is ushering in a new era that makes payments and other financial services cheaper, faster, more accessible.\n<ul>\n<li>It allows these services to flow across borders swiftly.<\/li>\n<\/ul>\n<\/li>\n<li>Bank deposits can be transformed to stable coins that allow instant access to a vast array of financial products and allow instant currency conversion.<\/li>\n<li>Decentralised finance could become a platform for more innovative, inclusive, and transparent financial services.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>What are the challenges posed by crypto assets?<\/strong><\/h2>\n<ul>\n<li>The rapid growth and increasing adoption of crypto assets also pose financial stability challenges as these are extremely volatile.\n<ul>\n<li>These are much more volatile than equities or commodities or even exchange rates. This volatility is introducing instability in the ecosystem.<\/li>\n<\/ul>\n<\/li>\n<li>Challenges posed by the crypto ecosystem include:\n<ul>\n<li>operational and financial integrity risks from crypto asset providers,<\/li>\n<li>investor protection risks for crypto-assets,<\/li>\n<li>inadequate reserves and disclosure for some stable coins.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Use of cryptocurrencies in India: Statistics<\/strong><\/h2>\n<ul>\n<li>The number of blockchain start-ups surpassed 300 in 2021, with the daily crypto trading volume peaking between $300 -$500 million.<\/li>\n<li>As per Global Consumer Survey in 2020, India ranks higher than China, United States, Germany and Japan in crypto adoption.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>About FTX scandal<\/strong><\/h2>\n<ul>\n<li>Recently, the cryptocurrency exchange FTX filed for bankruptcy and its chief executive, Sam Bankman-Fried, resigned.<\/li>\n<li>As a result, the savings of hundreds of thousands of customers who deposited their holdings on the FTX platform are in jeopardy.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>What is FTX?<\/strong><\/h2>\n<ul>\n<li>FTX is a cryptocurrency exchange based in the Bahamas.\n<ul>\n<li>The company built its business on risky trading options that are not legal in the United States.<\/li>\n<\/ul>\n<\/li>\n<li>It was founded by Sam Bankman-Fried in 2019 and lets users buy, sell, hold, and trade cryptocurrency.\n<ul>\n<li>It enabled customers to trade digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency known as FTT.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Why did FTX run into trouble?<\/strong><\/h2>\n<ul>\n<li>FTX has a native cryptocurrency token called FTT, which traders use for operations like paying transaction fees.<\/li>\n<li>In November 2022, a report, based on leaked documents, appeared to show that Alameda Research held an unusually large amount of FTT tokens.\n<ul>\n<li>Alameda Research is a hedge fund run by Bankman-Fried.<\/li>\n<li>FTX and Alameda are meant to be separate businesses, but the report claimed that they had close financial ties.<\/li>\n<\/ul>\n<\/li>\n<li>With this revelation, FTT\u2019s price plummeted and traders rushed to pull out of FTX, fearful that it would be yet another fallen crypto company.<\/li>\n<li>This resulted into liquidity crunch.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Impact on cryptocurrency market<\/strong><\/h2>\n<ul>\n<li>The cryptocurrency industry has long struggled to convince regulators, investors and ordinary customers that it is trustworthy.<\/li>\n<li>The fall of FTX, which seemed more stable than other companies, and the pull-out by Binance have jolted the market.\n<ul>\n<li>Binance is also a cryptocurrency exchanges.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>News Summary<\/strong><\/h2>\n<ul>\n<li>Reserve Bank of India Governor Shaktikanta Das warned that private cryptocurrencies, if allowed to grow, would lead to the next financial crisis.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Key highlights<\/strong><\/h2>\n<ul>\n<li><strong>On inherent risk associated with cryptos<\/strong>\n<ul>\n<li>The cryptocurrencies have certain huge inherent risks which could pose threat to the country\u2019s macroeconomic and financial stability.<\/li>\n<li>The RBI\u2019s concerns arise from the fact that crypto does not have any underlying asset.<\/li>\n<\/ul>\n<\/li>\n<li><strong>On regulating cryptos<\/strong>\n<ul>\n<li>On the issue of allowing crypto after subjecting it to regulation, RBI governor said that how something could be regulated when its origin was based on bypassing the system.<\/li>\n<li>Private cryptocurrencies owe their origin to bypassing and to breaking the system.<\/li>\n<li>These currencies do not believe in the central bank currency and also in the regulated financial world.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Total value of cryptocurrencies has currently shrunk<\/strong>\n<ul>\n<li>According to some estimates, the total value of cryptocurrencies has currently shrunk to $140 billion from $188 billion.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<hr \/>\n<h3><strong>Q1) What are the benefits of cryptocurrency?<\/strong><\/h3>\n<p>Transactional freedom, security, cost effective, decentralisation, ease of currency exchange, and ease of transaction are among the most important advantages of cryptocurrency.<\/p>\n<p>&nbsp;<\/p>\n<h3><strong>Q2) Is cryptocurrency legal in India?<\/strong><\/h3>\n<p>Cryptocurrencies are unregulated in India but in Budget 2022, the government announced a flat 30 per cent tax on gains from cryptocurrency transactions as well as a tax deducted source (TDS) of 1 per cent. \u00a0<\/p>\n<p>&nbsp;<\/p>\n<hr \/>\n<p><strong>Source:\u00a0<\/strong><a href=\"https:\/\/www.thehindu.com\/opinion\/op-ed\/taxing-cryptocurrency-transactions\/article65014904.ece\" target=\"_blank\" rel=\"nofollow noopener\">Cryptocurrency and its challenges<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Cryptocurrency is a digital currency that uses encryption techniques to regulate its generation and verify transfer of funds.<\/p>\n","protected":false},"author":5,"featured_media":33718,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-33717","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/33717","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=33717"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/33717\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/33718"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=33717"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=33717"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=33717"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}