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Essay on Cryptocurrency: Did you know you would be a millionaire today if you had bought bitcoins in 2006? Bitcoin is one of the many cryptocurrencies which exists virtually or digitally.
With the rise of digitalization, not only technology but also the nature of currency has changed unexpectedly. Can you ever imagine that any currency can infuse subjects like Mathematics and Computer Science techniques for its very existence?
If not, then welcome to the digital world of Cryptocurrency, where the infusion of both the subjects, complex Mathematics and Computer Science, forms the backbone of this virtual form of money.
Table of Contents
Cryptocurrency is a digital currency where cryptographic techniques are used for secure transactions. It involves arithmetic and number theory and computer science algorithms for secure transactions and control of the creation of new currency units. Cryptocurrency is not issued by any central authority. Its decentralized networks use blockchain technology, which provides a transparent and secure system that is free from decentralization from a central authority.
How does cryptocurrency work?
Cryptocurrency works in a decentralized system that uses blockchain technology, also called a public ledger, which records all the updated transactions between the holders of the currency. It is important to know that no central authority governs the currency and its departure. To secure the complete transaction, cryptography is used.
Cryptography is a type of public key that is commonly known to all the people dealing in transactions, but the private key is also a confidential key that serves as a secure identifier for the owner. The public key can be shared openly, which allows other people to send cryptocurrency to the address of the owner, but the private key needs access to control and authorization associated with that address, like a secret password.
Also Read: Best Apps to Manage Your Finance in a Foreign Country
Invention of Cryptocurrency
It is believed that the first cryptocurrency was first proposed in the form of cash by American cryptographer David Chaum in 1983. However, he worked on implementing the token currency method years later, in 1998. However, his idea was forwarded and used in the form of formulas and encryption in cryptocurrency.
Later, in the year 2009, Satoshi Nakamoto, the computer programmer, was also addressed as a mysterious figure in its commencement. Since its invention, cryptocurrency has continued to dominate the market and represents a substantial portion of the overall market, which has reached hundreds of billions to over a trillion USD.
With different forms of alternatives to cryptocurrencies or altcoins, such as Ethereum, Ripple, and Litecoin, the market has successfully reached its boom.
List of Examples of Cryptocurrency
The crypto market is full of many cryptocurrencies. Some of the important examples are listed below:
| Name of Cryptocurrencies | Details |
| Bitcoin (BTC) | It is the first known cryptocurrency also known as digital gold |
| Chainlink (LINK) | The main objective of its design is to connect smart contracts with real-world data, like APIs and different payment system |
| Stellar (XLM) | Its main aim is to gear towards fast and low-cost cross-border payments. |
| Ethereum (ETH) | Ethereum is known for introducing smart contracts such as enabling decentralised applications (DApps) |
| Ripple (XRP) | The main objective of Ripple is to simplify cross-border payments in the financial industry |
| Polkadot (DOT) | Polkadot aims to enable different blockchains so that there can be the transfer of messages. |
Also Read: What is Bitcoin and How Does it Work?
Cryptocurrency in India: The Regulations and Ongoing Developments
As per the Central Government of India, the illegal tender money cryptocurrency is not safe for the transaction. Not only does it pose a threat to investors, but it also does not support any control of the government’s process of working. But in 2018, with the intervention of the Supreme Court, the judiciary body invalidated the decision of the Reserve Bank of India, where the supreme financial body banned financial institutions from dealing with digital currency.
In the budget of 2022-2023, the Government of India has imposed a tax of 30 percent on the transaction of cryptocurrency and has also set up a panel regarding the use of blockchain technology.
Moreover, for the government to introduce cryptocurrencies in India, a formal regulatory framework could be set up. The authority is trying various possible approaches, which include the requirement of licensing for crypto exchange, which could be seen in the future.
Taxation on Cryptocurrency in India
The government of India charges between 30 and 1 percent tax on the profits earned from cryptocurrencies. As per the Union Budget of 2022,
- A tax of 1 percent will be deducted as TDS on the payment of the buyer if it crosses the set limit.
- A tax of 30 percent is charged on earnings from the transfer of virtual or digital assets.
- The gifted cryptocurrency will come under taxation from the beneficiary´s end.
- A record has to be kept for the transactions of the cryptocurrency as a part of income.
Advantages and Disadvantages of Cryptocurrency
Let us discuss some advantages of cryptocurrency:
- Fast Transfer of Money: The transfer of money or the speed of exchange is one of the major disadvantages faced by the general public. Here, cryptocurrency has come as a boon, and its quick transfer not only helps one with funds but also saves time too.
- Limited Supply: Only 21 million bitcoins, the form of cryptocurrency, can be released, as defined by the ASCII computer file. These capped coins, or limited supply, are in stark contrast to the traditional fiat currencies, which are allowed to be printed concerning their fixed numbers.
- No transaction cost: Cryptocurrency is available for transactions worldwide. Also, the cost of such transactions or transfers is nil or zero. No confirmation or elimination of a third party for confirmation makes it one of the most helpful modes for the transfer of funds anywhere in the world.
- Decentralization: There is no interference by the central government in the flow of currencies. Reducing the influence of the central government and freedom from the monopoly of a currency set by the authority make the users of cryptocurrency free from any hassle.
- Free for Trade: The users or investors of cryptocurrency are free to trade in different currencies, like the U.S. dollar or European euro, without any restrictions. They just need to pay a transaction charge for different wallet currency conversions.
After learning about the benefits of cryptocurrencies let us know the disadvantages too:
- Risk of Attacks: Cryptocurrencies are always under threat of malicious attacks. Hacks that exploit vulnerabilities or target the exchange might result in the loss of digital assets and a breach of security.
- Participation of Network: The consensus mechanism like Proof of Work (PoW) involves the participation of nodes or computational power. The use of power is one of the concerns related to energy consumption on a large scale.
- Lack of Key Policy: Cryptocurrencies do not have a standard regulatory framework. The absence of key policies can lead to uncertainty, which can impact global investors’ confidence in the crypto market.
- Delay in Payment: Though cryptocurrencies are a good market to invest in, they still face limited means of payment. Also, because of the illegal tender concept in the market, the merchants do not prefer cryptocurrency as a mode of transaction.
- The Volatility of the Market: The cryptocurrency market is extremely volatile and unpredictable. The reason behind the fluctuation is market sentiment or external factors. Because of the unstable market, it has become difficult to invest a huge amount.
In conclusion, cryptocurrencies are another step in the new era of digital currencies. Although there is a lack of government regulation, which creates distrust in some merchants, its global reach and free trade are still great supports, which, in the future, with further improvement, will slowly remove doubts of the government as well as of traders.
Also Read: List of Cryptocurrency Courses to Pursue in 2021!
FAQs
Cryptocurrency is a digital currency that is secured by cryptography. It acts as a medium of exchange between the two parties, the seller and the buyer. The possessions are secured using cryptographic techniques.
Cryptocurrency is used to make payments similar to legal tender money. The only difference between the two modes of payment is the risk. Money has the support of the government, whereas cryptocurrency does not have any government backup.
Cheaper as well as faster transactions are not just a requirement of the modern era; they also help in consuming time and do not cost unnecessarily. Moreover, crypto is transparent without any intervention from the government. All these features make crypto the necessity of the future.
Satoshi Nakamoto is the name of the person who is presumed to have developed cryptocurrency.
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