DNA Explainer: What is a Bitcoin? Is Cryptocurrency illegal in India?

A cryptocurrency or crypto is a digital currency that can be used to buy goods and services but uses an online ledger with strong cryptography to secure online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving prices skyward.

The most popular cryptocurrency, Bitcoin, has had volatile price moves this year, reaching nearly USD 65,000 in April before losing nearly half its value in May. 

What is cryptocurrency?

Cryptocurrency is made up of two words. Crypto is a Latin word derived from cryptography and which means hidden. Whereas currency also comes from Latin currentia, which is used for money. So cryptocurrency means hidden money or secret money or digital rupee. 

Who made it and why?

A lot of people believe that cryptocurrency was started by Satoshi Nakamoto in 2009, but it is not so. Even before this many investors or countries had worked on digital currency. The US created in 1996 prime electronic gold, gold that could not be kept but could be used to purchase things. However, in 2008 it was banned. Similarly, in the year 2000, the Netherlands had linked cash to smart cards to fill petrol.

Bitcoin Most Expensive Virtual Currency

Simply put, cryptocurrency is a digital cash system, which is built on computer algorithms. It stays online only in Digit form. There is no control of any country or government on this. Initially, it was declared illegal. But later due to the increasing popularity of Bitcoin, it has been legalised in many countries. Some countries are even bringing their own cryptocurrencies. Bitcoin is the most expensive virtual currency in the world.

How does Cryptocurrency work?

The popularity of cryptocurrency currencies has increased over the past few years. They are used through blockchain software. These digital currencies are encrypted or coded. It is managed through a decentralized system. In this, each transaction is verified by digital signature. Its records are kept with the help of cryptography.

How is the transaction done?

Whenever a transaction occurs in cryptocurrency, its information is recorded in the blockchain, that is, it is kept in a block. The security and encryption of this block is done by the miners. For this, they solve a cryptographic puzzle and find the appropriate Hash (a code) for the block.

Indian government stand

The important thing is that the central government can completely ban cryptocurrency in the new proposed bill. In this regard, a committee was constituted by the Center in the year 2017. This committee had proposed to ban cryptocurrency. In such a situation, cryptocurrency experts believe that in the coming days, the government can take a decision to ban all cryptocurrencies.

Reserve Bank of India stand

The Reserve Bank of India (RBI) on May 31, 2021, clarified that banks and other regulated entities cannot cite its 2018 circular on cryptocurrencies as it has been set aside by the Supreme Court in March 2020. The circular is not valid from the date of the SC order and cannot be cited or quoted from, the RBI said.

This clarification comes in the light of recent investor communication by various banking entities like HDFC, SBI, which cited the 2018 circular and intended to alert them of the 'uncertain regulatory landscape' of this space. Investors were asked to clarify the nature of these transactions and be aware of the risks associated with crypto and virtual currencies. The mails sent out by these banks in this regard also stated that failure to do so could mean permanent closure of bank accounts and suspension of credit cards.