Regulatory Mechanism of Cryptocurrency Blockchain in Banking, Financial, and Capital Markets in the Indian Panorama

Introduction

Blockchain system had to be understand through cryptocurrency, that is a form of currency in virtual mode but does not actually function as currency because the person who is issuing such cryptocurrency is private individuals/corporates and not the Sovereign (Irfan et al., 2023). Cryptocurrency is designed as currency. Defining characteristics of cryptocurrencies are: -

• a.

  “That cryptocurrencies are decentralized systems where transactions are authenticated by participants themselves by consensus. They are designed to bypass the financial system and all its controls. They cannot be traced or confiscated or frozen by Governments;

• b.

  They are anonymous – transactions are verified, but not the purposes or counterparties of transactions.

• c.

  They are borderless – that is, they work over the internet without any physical existence.” (Reserve Bank of India - RBI Bulletin, n.d.)

In case of currency issuer is government, usually a trusted entity like the sovereign. They are not issued by sovereign or government as in case of currency its RBI in India and the currency issued by RBI has intrinsic value and considered as the trusted source of currency issuer. Cryptocurrencies in normal transaction mode is not a currency, nor a financial asset and also not a physical asset but is a digital asset. The proponents have improvised to call them as digital assets. Cryptocurrency is a digital currency wherein transactions take place through darknet that is verified and recorded by encryption data strings in the form of currency units between parties. The record of cryptocurrency maintained by a decentralized system by using cryptography method and not regulated by any of the centralized recognized authority. Cryptocurrencies are decentralized finance system working through blockchain applications. Cryptocurrencies are decentralized as they do not depend on official authorities, government, or banks, thus facilitating cybercrime such as fraud, theft, the unauthorized use of computer resources (for mining), and social engineering attacks (to steal credentials), as well as providing criminals with opportunities to commit new crimes (Alyami et al., 2023). The basic purpose of blockchain generally works through distributed ledger wherein through use of technology through virtual world crypto products work without the intervention of financial intermediation that regulate them and by this way banks becomes redundant. Blockchain technology has gain the momentum since the usage of the same is done through a software wherein a protocol followed in the given process so as to have a secure transfer that is unique demands of value which is transacted in form. These transactions are done for money value or property or through contracts and done through identity credentials of the person using the internet as source of transfer. In this enter process the third-party intervention or intermediary is not required such as the bank or share market intermediatory or government through the internet, whereas cryptocurrency through ‘darknet/dark web’.