Over the past few years, there’s been a lot of discussion concerning the world’s progression towards a cashless society. Furthermore, bureaucrats and government authorities worldwide have also bolstered the idea further by removing individual notes of tender from circulation by demonetizing cash reserves. For instance, only 8 percent of the world’s money is represented by physical notes, and everything else is a form of digital fiat. Countries everywhere around the world have slowly been progressing towards a cashless society.
Today cryptocurrencies have become a global phenomenon known to most people. A cryptocurrency is a digital or virtual currency that uses cryptography for security. It is difficult to counterfeit it because of this security feature. A defining feature of a cryptocurrency and arguably its most endearing allure is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation. The anonymous nature of cryptocurrency transactions makes them well-suited for a host of nefarious activities, such as money laundering and tax evasion.
Benefits- Cryptocurrencies make it easier to transfer funds between two parties in a transaction; these transfers are facilitated through the use of public and private keys for security purposes. These fund transfers are done with minimal processing fees, allowing users to avoid the steep fees charged by most banks and financial institutions for wire transfers. Many observers look at crypto currencies as hope that a currency can exist that preserves value, facilitates exchange, is more transportable than hard metals, and is outside the influence of central banks and governments.
Drawbacks- A digital cryptocurrency balance can be wiped out by a computer crash if a backup copy of the holdings does not exist. Since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely. Cryptocurrencies are also not immune to the threat of hacking. In Bitcoin’s short history, the company has been subject to over 40 thefts, including a few that exceeded $1 million in value.
Bitcoin is a type of cryptocurrency: Balances are kept using public and private “keys,” which are long strings of numbers and letters linked through the mathematical encryption algorithm that was used to create them. The private key (comparable to an ATM PIN) is meant to be a guarded secret and only used to authorize Bitcoin transmissions.
There are no physical bitcoins, only balances kept on a public ledger in the cloud that – along with all Bitcoin transactions – is verified by a massive amount of computing power. It is a digital currency created in 2009. It follows the ideas set out in a white paper by the mysterious Satoshi Nakamoto, whose true identity has yet to be verified. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies.
Whereas The Reserve Bank is uncomfortable with “non-fiat” cryptocurrencies such as Bitcoin, it is right now working with a group of people at “Fiat cryptocurrency” which will be an alternative to the Indian rupee.
Fiat money is a currency that a government has declared to be legal tender, but it is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material that the money is made of. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on the faith and credit of the economy.