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Cryptocurrency

Context: There is a new cryptocurrency called Libra, announced by Facebook . While this signals Facebook’s plans to expand into the digital currency market, it has also raised privacy concerns.

How cryptocurrency works?

  • It is a virtual currency, which users buy and store in any of several available digital wallets, and use it for transactions on a decentralised network that is not controlled by one bank or a government.
  • Such a currency s powered by a technology called blockchain, which functions like an open ledger that gets updated in real time.
  • Each transaction on a blockchain network is preserved, and reversing it is impossible. Because data are encrypted, cryptocurrency is supposed to be secure and anonymous.

Is Libra different?

  • The values of most cryptocurrencies, such as Bitcoin, tend to fluctuate against real currencies.
  • The plan is to ensure Libra is stable and give users confidence.
  • Libra will be backed by a reserve of assets designed to “give it intrinsic value” and ensure stability. These assets includes securities and fiat currencies (like dollar, pound).

Also Read: BIMSTEC

The Libra model:

  • Libra will be controlled by the Libra Association, a non-profit based in Geneva.
  • Facebook will have a leadership role for 2019, but will later become one of many members of the association. Other prominent names backing Libra are Uber, Visa, Lyft, Mastercard, Paypal, and PayU from India.
  • The association has 28 members now and aims at 100 founding members by the first half of 2020.
  • Libra is planned as a “global currency” for use anywhere in the world without transaction fees. It will target those who are unbanked, who are believed to number around 1.7 billion across the world.

 

Privacy concerns:

  • Cryptocurrencies allow anonymous funding potentially acting as conduits for money laundering and terror financing. As the number of users and transactions are increasing, the hackers are getting into the personal wallets or even to the entire transaction.
  • Fraudsters are finding new ways to deceive consumers and loot them.
  • The anonymity of cryptocurrency has made way for cybercriminals to hold victims hard drives hostage to extort payment from them in terms of bitcoins.
  • Since cryptocurrency is borderless, it can be really attractive for terrorist finances as they can transfer funds across countries in a cheap way.
  • Certain characteristics of cryptocurrency like speed, cost, security make it a lucrative source to finance such activities
  • Cryptocurrency is being used to fund child pornography, sexual exploitation, and human trafficking
  • Most new users know close to nothing of the technology, or how to verify the genuineness of a particular crypto currency.
  • Intense volatility of cryptocurrency.

Way ahead:

  • Facebook’s entrance into the financial industry is a threat to democracies and their citizens around the world, on the same scale as disinformation and information warfare, which also depend on social media for their effectiveness.
  • In the wake of the not too distant global financial crisis, and the “fake news” and disinformation culture that is developing, people must slow down and fully evaluate disruptive technology of this magnitude.
  • Society cannot withstand a launch of a cryptocurrency in Facebook’s infamous “move fast and break things” style.

Current Affairs 2020

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