Answer Writing Practice for UPSC IAS & UPPSC Mains Exam: Paper - IV (General Studies – III) - 15 October 2019

Answer Writing Practice for UPSC IAS Mains Exam


Answer Writing Practice for UPSC IAS & UPPSC Mains Exam


UPSC Syllabus:

  • Paper-IV: General Studies -III (Technology, Economic Development, Bio-diversity, Environment, Security and Disaster Management)

Q. What is crypto-currency? Give reason whether the recommendations of the inter ministerial committee be accepted or not. (250 WORD)

Model Answer:

  • Why in News?
  • Introduction: What is Crypto-currency?
  • Arguments in favour of the recommendations
  • Arguments against the recommendations
  • Conclusion

Why in News?

The Inter-Ministerial Committee on Crypto-currency led by Subhash Chandra Garg has submitted its report recently, recommending banning all private crypto-currencies in India.

Introduction: What is Crypto-currency?

A crypto-currency is a digital or virtual currency that uses cryptography for security. A crypto-currency is difficult to counterfeit because of this feature. Public and private keys are used to transfer crypto-currency between individuals. Most crypto-currencies are decentralized systems based on block-chain technology. 

The Inter-Ministerial Committee gave a definition of crypto-currency in the draft bill. Through this definition it has suggested separating crypto-currency from digital rupee and digital foreign currencies. The definition lays down a clear stand against digital currencies which do not have the backing of Central Banks.

The best feature of crypto-currency, which is considered by many, is its Organic Nature, as it is not issued by any central authority rendering it immune from government interference and manipulation. Bitcoin, Etherean, Ripple are few notable examples of crypto-currencies.

At present there are more than 2,000 crypto currencies across the world with a market capitalization of approximately USD120 million. However, there is a growing concern on the regulation and banning of all private crypto currencies in India.

Arguments in favour of the recommendations of IMC:

The Inter-Ministerial Committee has recommended that, private crypto-currencies, are associated with risks and their prices are volatile, therefore it should be banned in India and fines and penalties would be imposed for carrying on of any activities connected with crypto-currencies in India. The other reasons as recommended by the committee are as follows:

  • All crypto-currencies have been created by non- sovereigns and are in this sense entirely private enterprises.
  • There is no underlying intrinsic value of these crypto-currencies. They lack all the attributes of a currency.
  • There is no fixed nominal value of these private crypto-currencies i.e. they neither act as any store of value nor are they a medium of exchange.
  • Since their inceptions, crypto-currencies have demonstrated extreme fluctuations in their prices.
  • Crypto-currencies are inconsistent. Hence, it is difficult for crypto-currencies to replace fiat currencies.
  • The report also noted that no country treats virtual currencies as legal tender.

Arguments against the recommendations:

  • The National Association of Software and Services Companies (Nasscom) said that instead of completely banning crypto-currencies, the government should work towards developing a risk-based framework to regulate and monitor crypto-currencies and tokens.
  • A ban would inhibit new applications and solutions from being deployed and would discourage tech startups. It would handicap India from participating in new use cases that crypto-currencies and tokens offer.
  • A ban is more likely to deter only the legitimate operators as they have no intent to be non-compliant. The market for the banned crypto-currency would likely go underground and become hard to track.
  • The report states that crypto-currency is a “currency”, while there are crypto-currencies classified as assets including “utility tokens” and “securities”. There is no mention of these crypto-currencies. For example, Bitcoin or Ethereum are not used as currencies in India but as assets.
  • Many crypto-currencies, these days, are backed by petroleum, gold, as well as the US dollar in the case of Facebook’s Libra.

Conclusion:

The Government needs to consider a reasonable policy and revisit the issues addressed by the Inter-Ministerial Committee so as to suitably balance technological innovation and protection of users and economic interests of the people.

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