Ban on cryptocurrencies: Understanding the proposed legislation
Distilled Policy Brief
- A Ministry of Finance committee recommended banning all private cryptocurrencies in India and proposed a draft legislative framework due to macroeconomic, security, and consumer protection risks.
- Cryptocurrencies are decentralized virtual currencies utilizing Distributed Ledger Technology that lack legal tender status, distinguishing them from government-backed fiat currency.
- Regulatory concerns cited by the committee include extreme price volatility, susceptibility to cyber fraud and ponzi schemes, high power consumption for transaction validation, and potential misuse for money laundering and terror financing.
🎯 Prelims High-Yield Examination Points
Cryptocurrencies are decentralised digital assets protected by cryptographic encryption using Distributed Ledger Technology; they lack legal tender status in India and no country has approved any virtual currency as legal tender.
⚖️ Mains Analytical & Syllabus Linkages
The proposed ban on private cryptocurrencies highlights the fundamental policy tension between embracing financial innovation and mitigating systemic risks such as illicit money flows, consumer fraud, and macroeconomic instability.
🎯 UPSC Prelims Practice Drill
With reference to cryptocurrencies and the recommendations of the Ministry of Finance committee, consider the following statements: 1. Cryptocurrencies possess the status of legal tender guaranteed by the central government, making it legally binding for all parties to accept them. 2. Cryptocurrencies are decentralized virtual currencies that rely on Distributed Ledger Technology to record transactions across multiple independent computer networks. 3. The committee recommended a ban on private cryptocurrencies due to concerns such as extreme price volatility, risk of cyber fraud, and potential misuse for money laundering. Which of the statements given above are correct?
- [A] 1 and 2 only
- [B] 2 and 3 only
- [C] 1 and 3 only
- [D] 1, 2 and 3
▶ Reveal Official Answer & Analytical Explanation
Statement 1 is incorrect because cryptocurrencies do not have the status of a legal tender; fiat currency is guaranteed by the central government. Statement 2 is correct as cryptocurrencies are decentralized virtual currencies utilizing Distributed Ledger Technology where transaction data is recorded and shared across multiple distributor networks. Statement 3 is also correct since the Ministry of Finance committee recommended banning all private cryptocurrencies due to risks like price volatility, consumer fraud, high power consumption, and potential misuse for money laundering and terror financing.
🏛️ Historical Twin PYQ Anchor (2021)
Consider the following statements regarding the "National Clean Air Programme (NCAP)": 1. It is implemented by the Ministry of Environment, Forest and Climate Change. 2. Central Pollution Control Board acts as the sole regulatory executive body.