What is Cryptocurrency ? How does it affect global society ? Has it been affecting Indian society also ?
Approach · directive: “what / how”
What it asks · Define cryptocurrency, explain its global economic, social and security effects, and then trace its Indian footprint in adoption, regulation, benefits and harms.
The question has 3 parts — answer each
- Define cryptocurrency
- Explain how it affects global society: gains, risks, security and regulatory responses
- Show whether and how it has been affecting Indian society: adoption, regulation, benefits and harms
Open with · Cryptocurrency is a digital asset secured by cryptography and recorded on a decentralised ledger (blockchain), usually outside any central bank's control; Bitcoin and Ethereum are examples.
Cover
- Global gains: fast, low-cost cross-border payments and remittances, access for the unbanked, and blockchain innovation such as smart contracts and tokenisation.
- Global risks: extreme volatility, speculation, frauds and Ponzi schemes, loss of savings, and heavy energy use in proof-of-work mining.
- Security and crime: pseudo-anonymity aids ransomware, dark-web trade, money laundering, terror financing and sanctions evasion.
- Responses differ: El Salvador made Bitcoin legal tender (2021), China banned trading (2021), the EU adopted MiCA rules, and central banks are piloting digital currencies.
- India's path: rapid uptake among young urban investors; the RBI's 2018 curb on banks was set aside by the Supreme Court in March 2020.
- Present stance: neither banned nor legal tender; income from virtual digital assets is taxed at 30 per cent, with 1 per cent TDS on transfers.
- Indian society: hopes of financial inclusion, but investor losses, scams, cyber-crime and misleading promotion; RBI's e-rupee pilots (2022) are the official alternative.
Close with · Crypto assets bring innovation but also systemic and social risks; India's mix of taxation, oversight and a central bank digital currency needs global coordination and public awareness.
Add value (verified)
- The Union Budget 2022-23 introduced a specific tax regime for virtual digital assets, taxing income from their transfer at 30 per cent. Highlights of the Union Budget 2022-23 - Ministry of Finance, PIB ↗“Specific tax regime for virtual digital assets introduced. Any income from transfer of any virtual digital asset to be taxed at the rate of 30 per cent”
Question: UPSC's CS (Main) 2021, GS Paper I — paper ↗. Approach: Minimalist IAS, checked 30 Sept 2026 (how we verify) — UPSC publishes no model answers. ·
Model answer · 260 words (UPSC limit 250) · Minimalist IAS
A cryptocurrency is a digital asset secured by cryptography and recorded on a decentralised ledger, the blockchain, outside any central bank's control; Bitcoin and Ethereum are the best-known examples.
Effect on global society
- Gains: fast, low-cost cross-border payments and remittances, access for the unbanked, and innovation in smart contracts and tokenisation.
- Risks: extreme volatility and speculation, frauds and Ponzi schemes that wipe out savings, and heavy energy use in proof-of-work mining.
- Security: pseudo-anonymity aids ransomware, dark-web trade, money laundering, terror financing and sanctions evasion.
- Monetary sovereignty: private currencies outside official control can weaken central banks' hold over money supply and capital flows.
- Divergent responses: El Salvador made Bitcoin legal tender (2021), China banned trading (2021), the EU adopted MiCA rules, and central banks are piloting digital currencies.
Effect on Indian society
- Yes, visibly: rapid uptake among young urban investors; the RBI's 2018 curb on banks dealing in crypto was set aside by the Supreme Court in March 2020.
- Regulation: neither banned nor legal tender; since the exam year, Budget 2022-23 taxed income from virtual digital assets at 30 per cent with 1 per cent TDS on transfers.
- Social impact: hopes of financial inclusion and new technology jobs, but investor losses, scams, cyber-crime and misleading promotion; RBI's e-rupee pilots (2022) offer a sovereign digital alternative.
- Beyond currency: blockchain pilots in land records and supply chains show the technology's use apart from speculation.
Crypto assets bring innovation but also systemic and social risks; India's mix of taxation, oversight and a central bank digital currency needs global coordination and public awareness to succeed.
Written by Minimalist IAS from facts checked at source (how we verify). UPSC publishes no model answers: compare your structure and coverage with this, then write your own.