Context:
Recently, the president of the U.S.A. announced the creation of a task force, “The President’s Working Group on Digital Asset Markets,” to develop a regulatory framework for digital assets.
- He pledged to make the U.S. the world’s crypto capital and envisions it becoming the global leader in both artificial intelligence and cryptocurrency.
- He unveiled $TRUMP coins, indicating his faith in digital currencies
About Cryptocurrency
- Cryptocurrency is a digital payment system that lets people send and receive payments directly, without needing banks.
- Transactions are recorded in a public ledger, with funds stored in digital wallets, and encryption is used to secure and verify these transactions.
- Cryptocurrency operates on a decentralized network of computers, making it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralised networks based on blockchain technology.
- There are thousands of cryptocurrencies, with some of the most well-known being:
- Bitcoin: The first cryptocurrency, founded in 2009 by the mysterious Satoshi Nakamoto.
- Ethereum: Launched in 2015, it’s a blockchain platform with its cryptocurrency, Ether (ETH).
- Litecoin: Similar to Bitcoin but offers faster payments and processes.
- Ripple: A distributed ledger system from 2012, used for tracking various transactions and partnered with banks.
- Cryptocurrencies other than Bitcoin are called “altcoins.”
Advantages of cryptocurrencies:
- Cheaper and faster money transfers.
- Decentralized systems that are resistant to single points of failure.
- Secure online payments without the need for third-party intermediaries.
Disadvantages of cryptocurrencies:
- High price volatility.
- Significant energy consumption for mining activities.
- Potential for use in criminal activities.
Blockchain Technology
- Blockchain is a shared, immutable ledger that records transactions and tracks assets across a network.
- It uses Distributed Ledger Technology (DLT) to store information securely in digital form, ensuring transactions are safe.
- Blockchain links data blocks together, making them resistant to hacking.
- It enables the conversion of assets into digital formats, offering transparency and immutability through decentralization.
- Blockchain, originally used in Bitcoin, is the foundation for various cryptocurrencies, decentralized finance apps, non-fungible tokens (NFTs), and smart contracts.
Central Bank Digital Currency (CBDC) and Digital Rupee (e-rupee):
- CBDC is a digital currency issued by a country’s central bank, similar to cryptocurrencies but backed by the government and tied to the country’s fiat currency.
- Several countries, including China, Brazil, South Korea, and the UAE, are developing CBDCs, while the Bahamas, Nigeria, and Sweden have already launched theirs.
Digital Rupee (e-rupee):
- Launched by the Reserve Bank of India (RBI) in December 2022, the digital rupee is India’s pilot CBDC for retail users.
- It is a legal tender in digital form, equivalent to the fiat currency, and can be exchanged one-to-one with physical cash. It is fungible and doesn’t require a bank account.