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What are the threats and challenges modeled by the use of crypto currencies as a substitute to the customary currencies? Explain.

Topic:  Awareness in the fields of IT, Space, Computers, Robotics, Nano-technology, Bio-technology and issues relating to Intellectual Property Rights.

5. What are the threats and challenges modeled by the use of crypto currencies as a substitute to the customary currencies? Explain. (250 words)

Reference: Live Mint

Why this question:

In April 2018, the Reserve Bank of India (RBI) had barred regulated entities such as banks from dealing in bitcoins and other virtual currencies. The Supreme Court has now lifted the restriction.

Key demand of the question:

The answer must discuss about crypto currencies: merits and demerits with special focus on the challenges that they pose as a substitute to the regular currency.

Directive:

Explain – Clarify the topic by giving a detailed account as to how and why it occurred, or what is the particular context. You must be defining key terms where ever appropriate, and substantiate with relevant associated facts.

Structure of the answer:

Introduction:

Briefly explain what crypto currencies are.

Body:

  • Cryptocurrencies are internet-based mediums of exchange. They are digital currencies that can be exchanged between parties without the need of a third entity, like a bank.
  • Discuss the risks associated with Cryptocurrencies, explain that Cryptocurrencies are vulnerable to cyber hacking and data privacy breaches and increase the risk of money laundering. They do not have any fundamental value as they are not legal tender, and are not backed by governments, central banks or a pool of assets.
  • They are a poor medium of exchange also because their valuation tends to be excessively volatile and susceptible to manipulation. They are seen as instruments of speculation and transactions that are below the radar of regulators and law enforcement agencies etc.
  • Discuss the worries of RBI associated with Cryptocurrencies.

Conclusion:

Conclude with the possible future of such technology.