Banking Article, Banking Finance 2022, Banking Finance May 2022

Crypto currency

Crypto means a person who adheres or belongs secretly to a party or group, not openly declared. Crypto currency is a virtual currency or digital currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurencies are decentralized networks based on block chain technology – a distributed ledger enforced by a disparate network of computers. Crypto currency is produced by a public network, rather than any government that uses cryptography to make sure payments are sent and received safely. Every crypto currency is a unique code or serial number. Each transaction is verified through an electronic distributed ledger called the block chain.

How crypto currency created: Crypto currency or Crypto coins creation depends on what is defined by a given crypto currency, code. It is created by a process called mining. Different process is adopted during creation of Crypto currency. In many Crypto currencies, after completion of mining a new coin is created. How exactly coins are created depends on what is defined by a given crypto currency’s code. Crypto currency is created by solving mathematical puzzles in a computer intensive process called mining. Crypto currency is stored in “wallets” or digital directories accessed by password. Crypto currency can be broken into smaller unique units. One can trade fractions of crypto currency or crypto coin. So crypto currency is software and a transaction is recorded and is dictated by code. Crypto currency transactions are stored as database known as a block chain. It is created by algorithms that rely on cryptography. Crypto currency software is decentralized and distributed, it means it is hosted on many computers across the world. The algorithms are written to award coins to computers that add transactions to the block chain.

Control and verification of crypto currency:

Crypto currency is neither backed by any banks or governments nor is it recognized as legal currency. Private parties are able to use bit coin for transactions if agreed upon and it is also purchased and traded on exchange by investors

 Three easy steps are there to very Crypto currency.

Step 1: Note your transaction ID: After sending crypto currency from one wallet to another wallet. One receives a transaction ID. This transaction id represents a unique “fingerprint” of transaction and allows transaction to be tracked. Make sure to save the transaction id.

Step 2: Input Transaction ID into the Block chain: Different crypto currency6 has their own block chain, which can be accessed from as website. For Bit coin, one can track at https://blockchain.info/.

Enter Transaction ID into the search field of the website and they can know the details of transactions. If one forgot to copy or save Transaction ID the he can search by using exchange or wallet address

Step 3: Check the status of transaction & verify its details: All the details regarding transaction will show after entering the transaction id. One can verify the details of transaction and check its status

Number of Crypto currency: There are more than four thousand crypto currencies of which some has very little volume of transactions. Some of important crypto currency include Bit coin, Ethereum, Litecoin, cardano etc. Most of Crypto currency is not linked to an asset but some are stable linked to as asset like US dollar or basket of currencies. Many countries have legalized the Crypto currency like Morocco, Nigeria, Namibia, United States etc. China is also developing a crypto currency called digital Yuan, so called central bank digital currency that aims to replace some of the cash in circulation.

Transactions through Crypto currency: Transactions are sent between peers using software called crypto currency wallets. The person creating the transaction uses the wallet software to transfer balances from one account (AKA a public address) to another. To transfer funds knowledge of a password (AKA a private key) associated with the account is needed. Transaction made between peers is encrypted and then broadcast to the crypto currency’s network and queued up to be added to the public ledger. Transactions are then recorded on the public ledger via a process called mining. All users of a given crypto currency have access to the ledger if they choose to access it. The transaction amounts are public by who sent the transaction is encrypted. Each transaction leads back to a unique set of keys. Whoever owns a set of keys, own the amount of crypto currency associated with those keys. Many transactions are added to a ledger at once. These blocks of transactions are added sequentially by miners. That is why the ledger and the technology behind it are called “block” “chain”. It is a “chain” of “blocks” of transactions.

How Cryptography works with crypto currency:  The keys that move balances around the block chain utilize a type of one way cryptography, called public key cryptography. The “hashes” (the one way cryptographic codes that tie together blocks on the block chain) use a similar type of cryptography. Meanwhile transaction data sent and stored on the block chain is tokenized (tokenization is a type of one way cryptography that points to data but doesn’t contain all the original data). The key to understanding these layers of encryption which ensure a system like Bit coin’s ( Some coins work a little differently) is found in one way cryptographic functions( cryptographic hash functions, cryptographic tokens and public key cryptography are names for specific, but related type of one way crypto graphic functions).  The main idea is that crypto currency uses a type of cryptography that is easy to compute one way, but hard to compute the other way without a “key” So we can say that it is easy to create a strong password but it is very hard for others to guess a strong password after it has been created.

Cons of Crypto currency:

  1. It can be difficult to comprehend
  2. Challenges of market fluctuation
  3. No security in case of loss
  4. Cyber security issues
  5. Price volatility and lack of inherent value
  6. Potential shortage of resources
  7. Potential mismanagement

Pros

  1. Unparalleled Transparency
  2. Instant and 24- hour accessibility
  3. Absolute secrecy
  4. Massive potential for returns
  5. Short time horizon
  6. Increased liquidity

Crypto currency An Indian Perspective:

Crypto currencies in Indian market can no longer be dismissed. Several Central banks in the world are closely monitoring crypto currencies to both determine regulations to protect investors as well as explore their benefits in the context of central bank digital currencies. So there is need of regulation. Crypto currencies today lack the regulatory safeguards that financial institutions and market have, such as third party audits, financial reporting and disclosure, prevention of insider trading and proper security infrastructure – all of which pose risks for the retail investor when UN established. There is need of regulation regarding various aspects of crypto currency like exchange, governance around issuance of new tokens, marketing etc. the potential of crypto currencies to make transactions and payments faster, cheaper and more secure has attracted several central banks to actively experiment with them.  Bank of England and the people’s Bank of China have already published statements that they will be issuing their own digital currency. In country such as India, where a majority of population still remains unbanked, financial inclusion could emerge as one of the biggest benefit of central bank digital currencies. Crypto currency is a viable substitute to reduce the need for cash, which is the only other retail form of central bank money in circulation. But the RBI has a two pronged view on crypto currencies and has been very consistent in its messaging for several years. On one hand it has repeatedly warned the general public against investing in crypto currencies, citing concerns over consumer protection, market integrity and money laundering. On the other hand it has been quite welcoming toward block chain technology in general finding the applicability of crypto currencies. The current need is a clear articulation of what constitutes a crypto currency it considers to be problematic. Key problem that the crypto currency community needs to address by initiating a dialogue with regulators. In Dec 2013, RBI issued the first of several statements warning users of the risks of trading in digital currencies. India’s Finance Minster said in statement that crypto currencies that people will be given adequate windows to experiment with block chain, bit coins and crypto currency. Union finance Minster Niramala Sitharaman has said that India is not shutting off all options when it comes to crypto currency or block chain and fin tech. She hinted that the center many not go for a blanket ban on digital currencies in the country. So we hope that Government comes with good regulation which is beneficial for all.

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