Context:
Release of Financial Stability Board (FSB)’s report on Multifunction Crypto-asset Intermediaries (MCIs).
- To enhance cross-border cooperation and information sharing among local authorities.
Multifunction Crypto-asset Intermediaries:
- Integral part of the crypto-asset ecosystem (cryptocurrencies, non- fungible tokens etc.)
- Individual firms or groups of affiliated firms that offer a range of crypto-based services, products and functions.
- They primarily revolve around operating the trading platform.
- Examples – Binance, Bitfinex and Coinbase.
- Benefits – Lower costs of access to crypto-asset markets, diversifying investment programmes; Lending and borrowing, etc.
A crypto-asset is a digital representation of value or a right that can be transferred or stored electronically using distributed ledger technology such as blockchain.
Cryptocurrency:
- A digital or virtual currency that uses cryptography for security.
- Decentralized currency (not controlled by any government or institution)
- Working –
- Transactions are recorded on a public digital ledger called blockchain.
- Maintained by a network of computers around the world
- Each new transaction is verified and added to the blockchain.
- Digital wallet – Software program that stores the user’s public and private keys which used to send and receive cryptocurrency.
- Mining – Uses computer power to solve equations, validating blockchain transactions, earning cryptocurrency.
Examples of Cryptocurrencies:
- Bitcoin (BTC):
- 1st decentralised cryptocurrency created in 2009.
- Invented by – Satoshi Nakamoto (as open-source software)
- No single administrator
- Ethereum (ETH):
- Decentralized open-source blockchain platform
- Own cryptocurrency – Ether
- Litecoin (LTC):
- Open-source peer-to-peer cryptocurrency
- Nearly identical to Bitcoin (BTC)
- Ripple (XRP):
- Decentralized open-source protocol
- Facilitates cross-border payments
- Transfers any currency, including USD, EUR, and Bitcoin
- Bitcoin Cash (BCH):
- Larger block size limit (8MB) compared to Bitcoin (1MB)
Source: The Hindu
Previous Year Question
With reference to “Blockchain Technology”, consider the following statements:
1. It is a public ledger that everyone can inspect, but which no single user controls.
2. The structure and design of blockchain is such that all the data in it are about cryptocurrency only.
3. Applications that depend on basic features of blockchain can be developed without anybody’s permission.
Which of the statements given above is/are correct?
[UPSC Civil Services Exam – 2020 Prelims]
(a) 1 only
(b) 1 and 2 only
(c) 2 only
(d) 1 and 3 only
Answer: (d)
Explanation:
Since blockchain operates through a decentralized platform requiring no central supervision, it is used in voting, banking, messaging app, internet advertising, etc. Hence, it is not restricted to cryptocurrency.
