Public vs Private Cryptocurrency: How do cryptocurrencies work and what does the proposed Bill mean?
Public vs Private Cryptocurrency: The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is among 26 new legislations that will be tabled in the upcoming winter session of the Parliament beginning November 29. The Bill was earlier listed on the agenda of the government in the Budget session-II, but couldn't see the light of the day.
As the government is considering a ban on all the private cryptocurrencies in the country, let us take a look at the Cryptocurrency Bill and clear our confusion around public and private cryptocurrencies.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021
1- The Bill proposes to create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India (RBI).
2- The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.
3- The Bill further proposes that individuals shall mine, buy, hold, sell, deal in, issue, transfer, dispose of or use cryptocurrency.
In order to get a clear understanding of public and private cryptocurrencies, we must first focus on how cryptocurrencies work.
How do cryptocurrencies work?
It is rightly said the introduction of cryptocurrencies have given birth to Decentralised Finance or DeFi as they use blockchain technology and are based on distributed ledgers. These currencies have multiple ledgers connected over the network and one among them is your bank or any other financial institution.
Any transaction on the network is recorded and cross-checked to avoid miscalculation or a bogus entry. Thus, there is no need for a third party to monitor the ledgers and this very well explains why there is no central institution monitoring the transactions.
This highlights the fact that all the cryptocurrencies are private in nature, however, if we look into the technicalities of the cryptocurrency space, the level of privacy it provides to customers groups it into public or private cryptocurrency.
Difference between private and public cryptocurrency
|What is Private Cryptocurrency?||What is Public Cryptocurrency?|
As discussed above, the distributed ledger system provides transparency about the transactions and the wallet addresses.
In the case of private cryptocurrency, several cryptographic measures are undertaken to mask this information, thereby providing the users with a level of privacy that their public counterparts cannot provide.
The transactions related to public cryptocurrency can be traced and even their amount can be deciphered.
While these types of cryptocurrencies can provide some level of anonymity, the wallet address linked to you can still be configured and your data can be public.
|Examples: Monero, DASH, and Horizen||Examples: Bitcoin, Ethereum and Litecoin|
In a nutshell, the proposed bill mentions an official digital currency. This could possibly mean that all the cryptocurrencies that are not owned by the government are private and may be banned.