CRYPTOCURRENCY || AFIFA AHMED
Cryptocurrencies represent the initial alternative to the conventional banking system. Cryptocurrency is a digital money that doesn’t require a bank or financial institution to verify transactions and can be used for purchases or as an investment. This form of digital or virtual currency is protected by cryptographic methods, rendering it almost impossible to forge or spend twice. In contrast to traditional money, cryptocurrencies function on decentralized networks supported by blockchain technology, a shared ledger overseen by a network of computers.
Blockchain
technology is a decentralized digital ledger that securely records transactions
across multiple computers. A user initiates a transaction, which is validated
by network nodes through consensus algorithms before being compiled into a
block. Each block is linked to the previous one using cryptographic hashes,
making the transaction permanent and unchangeable once added to the blockchain.
The
origins of cryptocurrency date back to the late 1990s, with the introduction of
Bitcoin in 2009 marking a significant milestone in digital currency. The
concept of digital money began in the 1980s with David Chaum's ‘eCash,’ which
aimed for secure transactions through cryptography. Bitcoin's launch
demonstrated the potential of decentralized digital currencies, leading to the
proliferation of thousands of altcoins that offer various features and
applications. Ultimately, Bitcoin challenged traditional financial systems by
operating without central authorities.
Position in India
Digital
currencies like Bitcoin and Ethereum are not recognized as legal currency in
India, but trading and investing in them are allowed. The Indian government has
implemented a tax rate of 30% on profits from cryptocurrency transactions,
along with a 1% Tax Deducted at Source (TDS) for transactions exceeding
₹50,000. The Reserve Bank of India, the Ministry of Finance, and the Securities
and Exchange Board of India oversee the crypto industry, with discussions
ongoing about a potential "Crypto Bill" to introduce stricter
regulations. The 2025 Budget introduced new reporting obligations for virtual
digital assets (VDAs) to enhance transparency and compliance.
Industry
participants have raised concerns about high tax rates and complex compliance
requirements, suggesting that a simplified tax structure could encourage
growth. Despite regulatory uncertainties, India’s cryptocurrency market remains
active, with local exchanges and startups exploring blockchain technology and
decentralized finance (DeFi) solutions. The government aims to balance
innovation with investor protection, as seen in initiatives like the Web3
Sandbox in Telangana. Moving forward, the future of cryptocurrency in India
hinges on regulatory clarity and collaboration, with stakeholders hopeful for a
framework that legitimizes and integrates cryptocurrencies into the financial
system.
Challenges in Cryptocurrency
The
cryptocurrency environment faces several critical challenges that hinder its
broader acceptance and stability.
(I) Security issues are the primary concern, with significant financial losses reported due to cyber threats, such as the $2.2 billion stolen from DeFi platforms in 2024, making users wary of asset protection.
(II) Market fluctuations also deter investors’ confidence, as erratic price changes can lead to substantial financial losses, compounded by the lack of centralized authority, which invites market manipulation.
(III) Additionally, the absence of consumer protections raises caution among users, as there is minimal governmental oversight to safeguard against scams and fraud.
(IV) Technological hurdles, such as scalability and interoperability, further complicate the situation, as increased user participation can overload networks, causing slower transactions and higher fees. The inability of various blockchain systems to communicate hampers potential integration into existing financial frameworks. Together, these issues highlight the need for ongoing innovation and regulatory efforts to establish a secure and stable cryptocurrency ecosystem.
Conclusion
Cryptocurrency
is at a pivotal moment as it reshapes financial systems and fosters innovation.
Despite its growing acceptance, challenges like regulatory uncertainty,
security threats, and market volatility persist. The decentralized nature of
cryptocurrencies complicates oversight, raising consumer safety and fraud
concerns. Balancing innovation with security will be essential for the future
of cryptocurrency.
