About the author
Navnit Kumar Senior Manager (Faculty) Union Bank of India Staff Training Centre, Gurugram
Understanding the term 'Cryptocurrency'
Before defining cryptocurrency, we must understand the characteristics of currency. A well-functioning currency should have 3 functions:
Store of Value: Store of Value means that the value of a currency should be stable over time. Due to high volatility this criterion is not met by cryptocurrencies.
Unit of Account: Unit of account means that money should allow us to easily determine the value for goods and services and allow us to compare them to each other. The volatility of Bitcoin makes it difficult for us to consider it as a unit of account.
Medium of Exchange: Medium of Exchange means that money should allow buyers and sellers to make transactions. Bitcoin partially fulfills this criterion but slow transaction speeds, high volatility poses some hurdles.
Since cryptocurrencies do not fulfill these criteria defining cryptocurrency as 'virtual currency' would not be inaccurate.
Now coming to Cryptocurrency, the Inter RegulatoryWorking Group on Fintech and Digital Banking set by RBI in 2017, defines cryptocurrency as digital representations of value, issued by private developers and denominated in their own unit of account. They also added that cryptocurrencies are not necessarily attached to a fiat currency but are accepted by natural or legal person as a means of exchange.
Brief understanding of Blockchain and Bitcoin
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