Author – Divij Jain, Welham Boys School
Dehradun: Cryptocurrencies, and the distributed ledger technology (DLT) on which they are based, have captured the attention and imagination of investors, academics, politicians and the general public alike. In this fast-paced digital era, cryptocurrencies have emerged as a disruptive force, challenging traditional financial systems, and revolutionizing the way we perceive money. Whether you’ve come across terms like Bitcoin, Ethereum, Tether or blockchain technology in the news or among friends, the concept of cryptocurrencies has become increasingly prevalent. Cryptocurrencies have been on the rise in recent years and have slowly permeated into traditional financial systems. They
originated from an anonymous, untraceable currency system proposed by Chaum (1983); considered the earliest digital currency theory. Cryptocurrencies are only accessible in and electronic format and are a type of digital currency that allows people to make payments to each other online. In contrast to national currencies, cryptocurrencies have no legislated fixed value – their value fluctuates based on multiple variables.Cryptocurrencies’ boom in the global market has impacted the shift of various existing government policies, like international and monetary policies used in the central banking systems. The cross-border transactions related to cryptocurrencies have sparked a debate about how these transactions could pose a major financial risk and how they could spawn scams and cases of money laundering. Cryptocurrencies’ use provides users with a quick and efficient landscape for transactions. However, the
uncertainty it proves to place has been a topic of global debate.
What is Block chain?
A blockchain is a distributed database or ledger shared across a computer network’s nodes. They are best known for their crucial role in cryptocurrency systems, maintaining a secure and decentralized record of transactions, but they are not limited to cryptocurrency uses. Blockchains can be used to make data in any industry immutable—meaning it cannot be altered.
Since a block can’t be changed, the only trust needed is at the point where a user or program enters data. This reduces the need for trusted third parties, such as auditors or other humans, who add costs and can make mistakes.
Blockchain is a type of shared database that differs from a typical database in the way it stores information; blockchains store data in blocks linked together via cryptography.
Different types of information can be stored on a blockchain, but the most common use has been as a transaction ledger.
In Bitcoin’s case, the blockchain is decentralized, so no single person or group has control—instead, all users collectively retain control.
Decentralized blockchains are immutable, which means that the data entered is irreversible. For Bitcoin, transactions are permanently recorded and viewable to anyone.
How does Blockchain work?
You might be familiar with spreadsheets or databases. A blockchain is somewhat similar because it is a database where information is entered and stored. The key difference between a traditional database or spreadsheet and a blockchain is how the data is structured and accessed.
A blockchain consists of programs called scripts that conduct the tasks you usually would in a database: entering and accessing information, and saving and storing it somewhere. A blockchain is distributed, which means multiple copies are saved on many machines, and they must all match for it to be valid.
Regulatory Challenges
Regulatory frameworks, like in any industry, present both advantages and disadvantages within the crypto assets industry. Regulators face the delicate task of fostering industry growth while safeguarding the interests of investors and consumers. Striking a balance between these two objectives poses numerous challenges.
Among the foremost challenges for regulators is accurately classifying existing cryptocurrencies. Crypto assets have emerged as a direct consequence of recent advancements in digital technology, offering novel possibilities for barter, investment, and financial transactions. The intricate and transformative nature inherent in cryptocurrencies poses a challenge when attempting to categorize them. Market developments and the rapid pace of innovation further complicate regulators’ efforts, leaving room for potential gaps.
Achieving a comprehensive classification in the market is a complex endeavor. One approach commonly employed is comparing crypto assets to traditional currencies. Extensive research conducted by the European Parliament has revealed that crypto assets have yet to be universally accepted as a general payment instrument.
Many analysts believe that cryptocurrencies constitute an entirely new asset class, a classification that holds true for tokens that function similarly to securities. Generally, crypto assets are recognized as investments due to their inherent value and other associated benefits.
