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Introduction and Regulation of Cryptocurrency

Cryptocurrency, generally referred to as “digital currency” or “virtual currency”, is a mode of financial exchange that enables users to virtually pay for goods and services without the presence of a central regulatory authority. It is characterized by peer to peer (P2P) transactions. Cryptocurrency is backed primarily by user consensus. Bitcoin can only be sent or received by logging the exchange on the public ledger, also called the “blockchain”. The entire network has to collectively agree on the contents of the ledger or blockchain, instead of a central authority maintaining the accounts. This mandates the consensus of users for the information to be noted in the blockchain. Cryptocurrencies provide privacy and lower transaction costs but there are certain risks also that come along with the usage. This paper will discuss the ramifications of using cryptocurrency. The work is divided into two articles. The first one introduces cryptocurrencies and examines the benefits as well as deficiencies associated with the usage of bitcoins. The subsequent article will deliberate on the illicit uses and talk about the suggestions for having in place a regulatory framework for bitcoins.


Bitcoin was introduced in 2009 by an anonymous developer who goes by the pseudonym, Satoshi Nakamoto. In his paper on the introduction of bitcoins, Satoshi conveyed his desire to create a coin that would eliminate the presence of a central authority and replace it with cryptographic evidence. Cryptocurrencies work as a series of electronic signatures where every holder transfers the coin to the subsequent one by digitally signing an assortment of the previous transaction and the public key of the next holder and adding these to the end of the coin[1]. The signatures can be verified by a payee to verify the chain of ownership. The transactions take place through a complex process of solving algorithms, known as “mining” [2]. The customers have to create a virtual “wallet” to indulge in the selling and buying of cryptocurrencies. Bitcoins do not have any intrinsic value. Their value is derived from their demand and supply [3]. It is a non-fiat currency. A fiat currency derives value from the government. Bitcoins are not regulated by the government or any central authority for that matter.

Bitcoin provides various benefits apart from low transaction fee and reducing the time taken to complete transactions. However, just like normal currency, bitcoins are vulnerable to theft, being lost or destroyed. These concerns are discussed further in the paper.

Benefits and Drawbacks of Bitcoins

Some of the benefits associated with bitcoins are:

Some of the drawbacks associated with bitcoins are:

Illegal uses of Cryptocurrency

Although the cryptocurrency provides certain benefits and comes along with certain drawbacks, there is a malignant side to it as well. Cryptocurrencies are being used for nefarious purposes like hacking, money laundering, obtaining illegal goods and services and other fraudulent activities.

The next half of the paper will elaborate on the illegal uses and the framework for their regulation.

List of citations and references 

  1. Satoshi Nakamoto. (2008) Bitcoin: A Peer-to-Peer Electronic Cash System. [Online].
  3. MARC ANDREESSEN. (2014, January) The New York Times. [Online]. matters/
  4. R. Wu, 2014. “Why we accept Bitcoin,” Forbes (12 February)
  5. B.P. Hanley, 2013. “The false premises and promises of Bitcoin”
  6. I. Fisher, 1933. “The debt-deflation theory of great depressions,” Econometrica, volume 1, number 4, pp. 337–357
  7. Andres Guadamuz and Chris Marsden, Blockchains and Bitcoin: Regulatory responses to cryptocurrencies, Volume 20, Number 12 – 7 December 2015,


Mitali Arora is a third year law student in Jindal Global University.

One response to “Introduction and Regulation of Cryptocurrency”

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