[Model Answer QP2021 GS1] What is Cryptocurrency? How does it affect global society? Has it been affecting Indian society also?

A cryptocurrency is a digital or virtual currency secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers.

A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.

The advantages of cryptocurrencies include cheaper and faster money transfers and decentralized systems that do not collapse at a single point of failure.

The disadvantages of cryptocurrencies include their price volatility, high energy consumption for mining activities, and use in criminal activities.

Impact on Society

1. Diluting sovereignty: Cryptocurrencies take away the sovereign power of issuing currency. Thus, diluting the bond between citizen and government.

2.  Integrating: Increasing usage of Cryptocurrency is economically integrating the global society.

3. Movement of Money: The transactions in crypto are cheap and faster. Thus, it makes capital more mobile/volatile posing risk to macroeconomic stability and consequent social consequences. 

4. Traditional Banking: Cryptocurrencies have disrupted traditional banking by offering alternative means of conducting financial transactions.

5. Investment Opportunities: Alternative mode of investment to retail investors as well as institutional investors.

6. Digital Divide: This creates accessibility to majority of the people in developing countries as they suffer from digital illiteracy as well as lack of digital connectivity.

7. Anti-Social Activities: Can be used by terrorist organization, drug cartels to smuggle contrabands which negatively impacts society at large.

Has it been affecting Indian society also?

1. Youth: The youth have found a alternative investment model and see cryptocurrency as a progressive step towards financial diversification.

2. Urban Areas: Cryptocurrency has emerged as a new asset class (alternative of gold).
India is in a nascent stage in adopting crypto currency. In India, financial and digital literacy is low. Hence the impact of Cryptocurrency is still very low. Steps needs to be taken to regulate this instrument as it has wider scope in creating instability in our Internal Security scenario.

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