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Bitcoins have seen better validation and mainstreaming in the last one year. In this context, explain how Cryptocurrencies like Bitcoins work? Why are governments and central banks suspicious of them? Explain.

Topic: Science and Technology- developments and their applications and effects in everyday life. Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

6. Bitcoins have seen better validation and mainstreaming in the last one year. In this context, explain how Cryptocurrencies like Bitcoins work? Why are governments and central banks suspicious of them? Explain. (250 words)

Reference:  The Hindu

Why the question:

El Salvador became the world’s first sovereign nation to adopt bitcoin cryptocurrency as legal tender. Thus the question. 

Key Demand of the question:

Explain how Cryptocurrencies work and why the governments are suspicious about them.

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:

A cryptocurrency is a digital asset designed to work as a medium of exchange. Cryptocurrencies typically use decentralized control as opposed to centralized digital currency and central banking systems. Cryptocurrencies are built on the back of blockchain technology, a system of distributed, cryptographically-secured account keeping. Bitcoin is the first decentralized cryptocurrency.

Body:

The answer body must have the following aspects covered:

Present the status of Cryptocurrencies across the world first.

Explain how they work.

Highlight the concerns associated with them; Discuss the measures being taken to mitigate some of the challenges.

Conclusion:

Conclude with way forward.