The Dark Side Of Cryptocurrency: RBI Governor’s Warning On Money Laundering And Terror Financing In 2023.

The Dark Side of Cryptocurrency: RBI Governor’s Warning on Money Laundering and Terror Financing in 2023.

The Governor of the Reserve Bank of India, Shaktikanta Das, has recently expressed his apprehension about the potential risks that cryptocurrency may pose to the country’s monetary systems. In a speech, he emphasised the absence of regulation in the crypto market, which could lead to the prevalence of illicit activities such as money laundering and terrorist financing.

The governor’s concerns come at a time when India is contemplating how to regulate digital currencies, with proposals for an outright ban on private cryptocurrencies currently under consideration by the Indian government.

The issue of cryptocurrencies has been a subject of global debate in recent years, with central banks and financial regulators worldwide struggling to deal with the challenges presented by this emerging asset class.

More about what RBI Governor’s concerns.

 One of the primary concerns with cryptocurrencies is their decentralisation and lack of regulation, which makes them susceptible to being used for illegal activities, including money laundering and terrorist financing. 

Moreover, the volatility of cryptocurrencies, with their unpredictable prices, makes them risky investments that can cause harm to unsuspecting investors.

The Reserve Bank of India has been cautious in its approach to cryptocurrencies, with the central bank expressing concern about the potential risks posed by crypto assets on several occasions. In 2018, the Reserve Bank of India banned regulated entities from dealing in virtual currencies, citing concerns about their safety and security.

The ban was later lifted by the Supreme Court of India in 2020, but the central bank has maintained its scepticism about the safety and legitimacy of cryptocurrencies.

India is not alone in its concerns about cryptocurrencies, with several countries, including China, Russia, and Turkey, taking a similarly cautious approach to the regulation of digital currencies. The issue of cryptocurrencies is a complex one, and finding a balance between fostering innovation and protecting consumers from potential risks is a delicate task that will require collaboration between governments, financial regulators, and the private sector.

Cryptocurrency: What it is, how it works, and why many Countries didn’t accept it yet?

What Cryptocurrency is and its working?

Cryptocurrency is a digital or virtual currency that uses encryption techniques (cryptography) to secure and verify transactions and to control the creation of new units. Unlike traditional currencies, such as dollars or euros, cryptocurrencies are decentralised and operate independently of a central bank.

Cryptocurrencies use a decentralised ledger technology called blockchain, which records all transactions in a network of computers. This ledger is maintained by the participants in the network, rather than a central authority like a bank or government.

One of the key features of cryptocurrency is that it is secure and anonymous. Transactions are recorded on the blockchain ledger, which makes them transparent, but the identity of the parties involved in the transaction is kept anonymous. 

This anonymity is achieved through the use of private keys and public keys, which are unique codes that are used to sign and verify transactions. Bitcoin is the first and most well-known cryptocurrency, but there are now thousands of different cryptocurrencies, each with their own unique features and uses. 

Some cryptocurrencies, such as Ethereum, have a wider range of uses beyond just being a digital currency, including the ability to create and run decentralised applications (DApps) on their blockchain network.

Overall, cryptocurrency is a new form of digital currency that relies on encryption techniques, decentralisation, and transparency to provide security, anonymity, and efficiency in financial transactions.

Here’s a brief overview of how it works:

1. Cryptocurrency is based on a decentralised ledger technology called blockchain. This ledger records all transactions in a network of computers, and every participant in the network has access to it.

2. When a user wants to make a transaction, they create a digital signature using their private key, which is a unique code that only they possess. This signature is then broadcast to the network.

3. The network of computers then verifies the transaction using complex algorithms and cryptographic techniques. Once the transaction is validated, it is recorded on the blockchain ledger and cannot be altered or deleted.

4. The transaction is then confirmed by a network of computers, called “miners” who compete to solve complex mathematical problems in exchange for a reward in cryptocurrency.

5. The cryptocurrency that is generated in this process is then added to the blockchain ledger and can be used for future transactions.

6. Users can store their cryptocurrency in digital wallets, which are secure digital storage devices that store their private keys and allow them to send and receive cryptocurrency.

7. Transactions in cryptocurrency are generally faster and cheaper than traditional financial transactions because they don’t involve intermediaries like banks or payment processors.

Reasons of Cryptocurrency’s non-acceptance.

There are several reasons why cryptocurrency is not accepted in many countries:

1. Lack of regulation: Cryptocurrency operates independently of central banks and governments, which can make it difficult to regulate and control. Many countries are hesitant to embrace cryptocurrency because of concerns about its potential impact on financial stability, money laundering, and tax evasion.

2. Volatility: Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. This makes it a risky investment for individuals and businesses, and many countries are wary of endorsing or accepting a currency that is so unstable.

3. Lack of adoption: Cryptocurrency is still a relatively new technology, and many people and businesses are not yet familiar with how it works or how to use it. Without widespread adoption, it can be difficult for countries to accept cryptocurrency as a legitimate form of payment.

4. Security concerns: While cryptocurrency is generally considered secure, there have been instances of hacking and fraud in the past that have resulted in the loss of large amounts of cryptocurrency. This can create a lack of trust in the technology, which can make it difficult for countries to accept it.

5. Environmental concerns: The process of mining cryptocurrency requires a significant amount of energy, which can have a negative impact on the environment. Some countries are hesitant to accept cryptocurrency because of concerns about its environmental impact.