Financial service providers are trying to provide their customers services to which they're accustomed to a more efficient, secure, and cost-effective way. During this time, a person or group of people known by the pseudonym Satoshi Nakomoto introduced a new technology in 2009 called Blockchain technology, through which payments between two parties can be done digitally, anonymously and without any third party intervention. It was initially designed to facilitate, authorize, and log the transfer of Bitcoins and other cryptocurrencies.
WORKING OF BLOCKCHAIN TECHNOLOGY
It is a shared ledger of transactions, each of which depends on a logical relationship to all its previous transactions. In order for the transactions to be added to the ledger, the parties using the ledger have to agree for the validity of the transaction through complex mathematical processes that remove the need for a third party so as to keep all the parties honest. Since the transactions are confirmed by the parties and are dependent on the past entries in the ledger, blockchain provides a near tamper-proof record of sensitive activity (anything from international money transfers to shareholder records). It gives firms digital and relatively easy alternative ways to banking processes.
These are the systems that provide storage and transmission of units of value very much similar to paper currencies. Cryptocurrencies use blockchain technology to make secure and anonymous transactions. There are thousands of cryptocurrencies like Bitcoin, Ethereum etc. Cryptocurrencies like Bitcoins are earned through mining which requires miners to use computers to solve complex mathematical problems/puzzles. There are a limited number of Bitcoins-21 million. The number of Bitcoins in the payout is reduced by 50% about every four years. At the moment, that reward is 12.5 Bitcoins. The idea is that Bitcoin’s value will go up over time, allowing the smaller disbursements to retain their value. As Bitcoins are limited in number, they are safe from inflation which is caused by an increase in money supply in the economy. During 2017, most of the time we have heard some of the following terms (especially those who have interest in finance): Cryptocurrency, Blockchain technology, Bitcoin, ripple and Ethereum. But what are they? And why have these terms become burning topics? Before we try to answer these, let’s first understand the basics of blockchain technology. As the digital technologies are coming up, According to 99Bitcoins, mining Bitcoins becomes more difficult as more miners join the process of mining. This problem can be resolved by turning towards more powerful computers. The major disadvantage with the Bitcoins is that if Bitcoin accounts are lost or forgotten, then those Bitcoins may never be recovered.
USES OF BLOCKCHAIN TECHNOLOGY AND CRYPTOCURRENCIES
Bitcoins are very volatile. But as per a forecast by Snapchat’s first investor, Jeremy Liew, Bitcoin’s value may reach as high as $500,000 by 2030. Some people believe that cryptocurrencies will eventually replace fiat currencies. However, others argue that cryptocurrencies that have a limited number of units like Bitcoin won’t be used for this purpose. That’s because as more people use the cryptocurrency, the value will increase, which incentivizes users to save rather than spend – currency works better for payments when the value is relatively stable. Trading cryptocurrencies occur on dedicated exchanges. Larger exchanges like GDAX, Kraken, Bitfinex, and Gemini typically offer solid volume to trade cryptocurrencies through bank transfers or credit cards. Blockchain technology itself has numerous applications in the area of banking, digital media, healthcare, Internet of Things, venture capital etc. The technological and financial potential of Blockchain and cryptocurrencies are immense, and these uses will only grow with time.
INDIAN GOVERNMENT STANCE ON ITS USE
In his budget speech while presenting the union budget Shri Arun Jaitley once again confirmed Indian government’s stance on the use of cryptocurrency by saying that “Cryptocurrency is not a legal tender, but the government will keep exploring blockchain technology and will take all measure to eliminate the use of crypto in financing illegitimate operations. Blockchain technology allows the organisation of records without intermediaries, said the finance minister. He, therefore, said that the government will keep exploring the technology to further strengthen digital India campaign. The government has time and again warned the cryptocurrency investors in the country against the dangers of investing in digital currency. Even the Reserve Bank of India has issued caveats against making an investment into cryptocurrencies such as bitcoin 4 times in the past year. Along with the central bank, SEBI and income tax department have shown their concern regarding digital currencies many times in the past year. Accounts of major cryptocurrency exchanges were also frozen earlier this year.