Economy : Digital Payments And Financial Inclusion

Q 8 / 8

UPSC CSE Prelims 2016

With reference to 'Bitcoins', sometimes seen in the news, which of the following statements is/are correct?

  1. Bitcoins are tracked by the Central Banks of the countries.
  2. Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address.
  3. Online payments can be sent without either side knowing the identity of the other.
Select the correct answer using the code given below.

EXPLANATION

Correct Option

The correct option is (b).

Explanation

Bitcoin is a decentralized digital currency that operates on a peer-to-peer network using blockchain technology. Unlike traditional fiat currencies, it functions without a central authority or intermediary to manage transactions or issue new units.

Statement-wise Analysis

  • Statement 1 is Incorrect. Bitcoin is designed to be decentralized and is not issued, controlled, or tracked by any Central Bank (such as the Reserve Bank of India or the Federal Reserve). The transaction ledger is maintained by a distributed network of nodes (computers) rather than a centralized financial institution.
  • Statement 2 is Correct. The Bitcoin network is permissionless. Any individual with internet access can generate a Bitcoin wallet address and transact with any other address globally. There are no restrictions based on geography or banking relationships.
  • Statement 3 is Correct. Bitcoin transactions are pseudonymous. While all transactions are recorded publicly on the blockchain, they are linked to digital addresses (alphanumeric strings) rather than real-world identities. Consequently, payments can be made without the sender or receiver necessarily knowing the personal identity of the other party.

Key Takeaway: Bitcoin is a decentralized, peer-to-peer cryptocurrency that operates independently of central banks, offering pseudonymous transactions without the need for traditional financial intermediaries.

SOURCEIndian Art and Culture by Nitin Singhania, Chapter 10: Indian Literature