Cryptocurrency regulation in India

Abstract

Cryptocurrencies or virtual currencies are digital currencies used by private groups or individuals. Since most of them are not regulated by central banks and national government, they are known as alternative currencies – those which cannot be regulated by central authorities. They use extremely complex codes that encrypt sensitive data transfer thereby securing their exchange. The algorithms are built by complex mathematics and computer engineering laws which makes it nearly impossible to counterfeit or duplicate the product. The code masks the identity of the users making it difficult to track the users. Currently, more than hundreds of cryptocurrencies exist. Bitcoin is the most dominant form of cryptocurrency used in the market. The purpose of cryptocurrencies is to improve global access to money with only the minimum required amount of oversight without disclosing the transacting parties’ identity. There is no involvement of national or international governments, regulatory bodies or financial institutions. This is a representation of lack of trust in governments and monetary authorities. It directly challenges the fiat money system where governments give a sovereign guarantee to legal tender and the public deposits their money with centrally regulated banks and financial institutions. Since it is decentralized, it aims to de-risk the financial system through independent, third-party verification mechanisms. It is a step in the direction of avoiding any government interference in one’s financial plans and practice true freedom.