“Cryptocurrency has fundamental flaws that cloud its much-hyped promise” Skip to main content

“Cryptocurrency has fundamental flaws that cloud its much-hyped promise”

By May 14, 2022May 22nd, 2023Economy, GS 3, Mains Answer Writing

Ques. “Cryptocurrency has fundamental flaws that cloud its much-hyped promise”. Elaborate.


      • Cryptocurrency is a form of virtual currency is a digitally tradable form of value, which can be used as a medium of exchange or acts as a store of value. It does not have the status of a legal tender and is decentralised through distributed ledger and protected by cryptographic encryption techniques. Ex: Bitcoin, ripple.

      Predicted potential of Crypto currencies

      • User Autonomy: Digital currencies allow users more autonomy over their own money than fiat currencies do. No place of an intermediary authority like a bank or government.
      • Discretion: Purchases are discreet and are never associated with his personal identity.
      • Elimination of Banking Fees: This means no account maintenance or minimum balance fees, no overdraft charges and no returned deposit fees, among many others.
      • Very Low Transaction Fees for International Payments: This can be a major advantage for travellers. This happens very quickly, eliminating the inconvenience of typical authorization requirements and wait periods.

       Fundamental flaws in virtual currencies

      • Volatile: Cryptocurrencies are subjected to market fluctuations. Even a single tweet by Elon Musk can make it move by half its value.
      • No regulation: Cryptocurrencies are decentralised, which makes them difficult to regulate.
      • Prone to cyber theft: Cryptocurrency leave consumers open to risk of phishing cyber-attacks and ponzi schemes. Further, transactions are irreversible, meaning there is no way to redress wrong transactions
      • High energy consumption: cryptocurrencies require large amount of storage and processing power, which can have unfavourable consequences on country’s energy resources.
      • Prone to misuse: cryptocurrencies provide greater anonymity making them more vulnerable to money-laundering and terrorist funding activities.

      Way forward

      • Clarity on Crypto-currency definition: A legal and regulatory framework must first define crypto-currencies as securities or other financial instruments under the relevant national laws and identify the regulatory authority in charge along with.
      • Ensuring Compliance and Transparency- Licenses may be issued based on compliance with eligibility requirements and detailed scrutiny of operational policies and procedures on internal governance, risk management and financial resources.
      • Implanting the measures as suggested by SC Garg committee.