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.
It asks 3 things — answer each
- What: define cryptocurrency and how it works
- How: its effects on global society, gains and risks
- Has it affected Indian society: adoption, regulation, gains and harms
Open with · A cryptocurrency is a privately issued digital token, secured by cryptography and recorded on a decentralised ledger (blockchain), with no central bank or sovereign behind it; Bitcoin is the best-known.
Cover
- Definition and working: private key, peer network, validation, block added to an immutable ledger.
- Global gains: cheap cross-border payments, access for the unbanked, smart contracts and tokenisation.
- Global risks: volatility, frauds and exchange collapses, energy-hungry mining, crime and sanctions evasion, threat to monetary sovereignty.
- India, regulation: RBI's 6 April 2018 curb set aside by the Supreme Court on 4 March 2020 (IAMAI v. RBI).
- India, since then: 30% tax on VDA income and 1% TDS (Budget 2022-23); e₹-R pilot from 1 December 2022.
- India, society: young urban investors, scams and cyber fraud, but blockchain jobs and start-ups.
- Way forward: global coordination, KYC/AML on exchanges, investor education, CBDC.
Close with · Blockchain is the lasting innovation and private crypto its volatile wrapper; because crypto ignores borders, India's tax-trace-and-CBDC path needs common global rules.
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”
- RBI's circular of 6 April 2018 barred regulated entities from dealing in virtual currencies.Prohibition on dealing in Virtual Currencies (VCs) - RBI circular RBI/2017-18/154 ↗“entities regulated by the Reserve Bank shall not deal in VCs or provide services for facilitating any person or entity in dealing with or settling VCs”
- The Supreme Court set aside RBI's 2018 crypto circular on 4 March 2020 in Internet and Mobile Association of India v. RBI.Customer Due Diligence for transactions in Virtual Currencies - RBI circular (2021) ↗“this circular was set aside by the Hon’ble Supreme Court on March 04, 2020 in the matter of Writ Petition (Civil) No.528 of 2018 (Internet and Mobile Association of India v. Reserve Bank of India)”
- Budget 2022-23 provided TDS at 1 per cent on payments for transfer of virtual digital assets.Union Budget 2022-23 highlights - Ministry of Finance, PIB ↗“TDS to be provided on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration above a monetary threshold”
- RBI's retail digital rupee (e₹-R) pilot was launched on 1 December 2022 within a closed user group.CBDC pilot launched by RBI in retail segment - Ministry of Finance, PIB (12 Dec 2022) ↗“The pilot in retail segment, known as digital Rupee-Retail (e₹-R), was launched on December 01, 2022, within a closed user group (CUG) comprising participating customers and merchants.”
Question: UPSC's CS (Main) 2021, GS Paper I — paper ↗. Approach: Minimalist IAS, checked 16 Oct 2026 (how we verify) — UPSC publishes no model answers. ·
Model answer· 330words · Minimalist IAS
A cryptocurrency is a privately issued digital token, secured by cryptography and recorded on a decentralised ledger, the blockchain, with no central bank or sovereign behind it; Bitcoin is the best-known. Its spread raises questions for societies everywhere, India included.
- Owner signs a transfer with a private key
- peer network receives it
- miners or validators verify it
- block added to the chain
- record becomes near-permanent
How it affects global society
- Cheaper transfers: cross-border payments and remittances without banks, and access for the unbanked.
- Innovation: smart contracts, tokenised assets and decentralised finance open new business models.
- Volatility and fraud: speculative bubbles, Ponzi schemes and exchange collapses wipe out household savings.
- Crime and security: pseudonymity aids ransomware, dark-web trade, money laundering, terror financing and sanctions evasion.
- Monetary sovereignty: private money outside official control can weaken central banks' grip on money supply and capital flows.
- Energy cost: proof-of-work mining consumes large amounts of electricity.
- Divided responses: states range from adopting it as legal tender to banning it outright.
Has it affected Indian society? Yes
- Regulatory see-saw: RBI's circular of 6 April 2018 barred regulated entities from dealing in virtual currencies; the Supreme Court set it aside on 4 March 2020 (IAMAI v. RBI).
- Tax and traceability: since the exam year, Budget 2022-23 taxed income from virtual digital assets at 30 per cent, with 1 per cent TDS on transfers.
- Investor culture: young urban investors entered through apps, but scams, fake tokens and cyber fraud have caused real losses.
- Sovereign alternative: RBI's retail digital rupee (e₹-R) pilot began on 1 December 2022 within a closed user group.
- Opportunity: blockchain start-ups and jobs, and pilots in land records and supply chains.
Way forward
- Calibrated rules: KYC and anti-money-laundering checks on exchanges, honest advertising and investor education.
- Global coordination: common standards, since crypto flows ignore national borders.
Blockchain is the lasting innovation and private crypto its volatile wrapper; India's path of taxing, tracing and offering a sovereign digital rupee will work only alongside common global rules.
Prepared by Minimalist IAS to the answer standard of Shivam Singh (mentor, 7 years) · facts checked against official sources (how we verify) · updated 16 Oct 2026. UPSC publishes no model answers: compare your structure and coverage with this, then write your own.
