💥Join UPSC 2027,2028 Mentorship (July Batch) + XFactor Notes & Microthemes PDF

Author: Nitesh Gughane

  • Israel-Palestine conflict explained

    Context

    The Israeli–Palestinian conflict is one of the world’s most enduring hostilities, with the Israeli occupation of the West Bank and the Gaza Strip reaching 53 years. Various attempts have been made to resolve the conflict as part of the Israeli–Palestinian peace process.

    British Palestine & Jew Migration

    • The British, after the First World War, established a colony in Palestine maintaining that they would rule the area until the Palestinians were ready to govern themselves. This was called Mandatory Palestine as it was according to the League of Nations mandate.
    • Even before this time, there was a massive influx of Jews from Europe into Palestine in the hope of creating their homeland after being expelled from it for centuries.
    • Meanwhile, in the 1920s and 1930s, the Jewish population in Palestine increased by hundreds of thousands, facilitated by the British (who were honouring the Balfour Declaration).
    • During this time, tensions between the growing Jewish communities and the Arabs were increasing.
    • In 1936, the Palestinian Arabs revolted against the British as a result of the Palestinian Arabs viewing themselves increasingly as a nation.
    • This revolt was suppressed by the British with help from Jewish militias.
    • After the revolt, however, the British issued a white paper that limited Jewish immigration into Palestine and called for the establishment of a joint Jewish-Arab state in Palestine within ten years.
    • During the course of World War II, many Jews escaping Europe from the Holocaust were brought to Palestine illegally (because of the immigration limit) by Jewish organisations.
      Tensions escalated and the British handed over the problem to the newly established United Nations.
    • In 1947, the UN voted to establish separate Palestinian and Jewish states in the region dividing Palestine. This plan was rejected by the Arabs.

    Background of the Israel Palestine conflict

    Following the Declaration of the Establishment of the State of Israel on 14 May 1948, the Arab League decided to intervene on behalf of Palestinian Arabs, marching their forces into former British Palestine, beginning the main phase of the 1948 Arab–Israeli War.

    1948 Arab Israel War

    • The overall fighting, leading to around 15,000 casualties, resulted in cease-fire and armistice agreements of 1949, with Israel holding much of the former Mandate territory, Jordan occupying and later annexing the West Bank and Egypt taking over the Gaza Strip, where the All-Palestine Government was declared by the Arab League on 22 September 1948.
    • Through the 1950s, Jordan and Egypt supported the Palestinian Fedayeen militants’ cross-border attacks into Israel, while Israel carried out reprisal operations in the host countries.
    • Over the following years, tensions rose in the region, particularly between Israel and Egypt, Jordan, and Syria. Following the 1956 Suez Crisis and Israel’s invasion of the Sinai Peninsula, Egypt, Jordan, and Syria signed mutual defense pacts in anticipation of a possible mobilization of Israel troops.
    • The 1956 Suez Crisis resulted in a short-term Israeli occupation of the Gaza Strip and exile of the All-Palestine Government, which was later restored with Israeli withdrawal.
    • The All-Palestine Government was completely abandoned by Egypt in 1959 and was officially merged into the United Arab Republic, to the detriment of the Palestinian national movement. Gaza Strip then was put under the authority of the Egyptian military administrator, making it a de facto military occupation.
    • In 1964, however, a new organization, the Palestine Liberation Organization (PLO), was established by Yasser Arafat.[29] It immediately won the support of most Arab League governments and was granted a seat in the Arab League.

    1967 Six day War

    • The 1967 Six-Day War exerted a significant effect upon Palestinian nationalism, as Israel gained military control of the West Bank from Jordan and the Gaza Strip from Egypt.
    • The PLO was unable to establish any control on the ground and established its headquarters in Jordan, home to hundreds of thousands of Palestinians, and supported the Jordanian army during the War of Attrition, which included the Battle of Karameh.
    • However, the Palestinian base in Jordan collapsed with the Jordanian–Palestinian civil war in 1970. The PLO defeat by the Jordanians caused most of the Palestinian militants to relocate to South Lebanon, where they soon took over large areas, creating the so-called “Fatahland”.

    Camp David Accords 1978

    1)  The Camp David Accords were a pair of political agreements signed by Egyptian President Anwar Sadat and Israeli Prime Minister Menachem Begin on 17 September 1978.

    2)  The Camp David Accords established the so framework for peace in the Middle East and brought about the end of simmering conflict between Egypt and Israel.

    3)  They also called for the creation of Palestinian state in the area known as Gaza and on the West Bank of river Jordan.

    4)  However since the Palestinians were not represented at the talks, the resulting agreement was not formally recognized by the United Nations.

    • In 1982, following an assassination attempt on one of its diplomats by Palestinians, the Israeli government decided to take sides in the Lebanese Civil War and the 1982 Lebanon War commenced. The initial results for Israel were successful. Most Palestinian militants were defeated within several weeks, Beirut was captured, and the PLO headquarters were evacuated to Tunisia in June by Yasser Arafat’s decision.
    • First Intifada: The tension between Israel and Palestine escalated with Israel’s increased settlement in West Bank and Gaza Strip. Palestinians living in the West Bank and the Gaza Strip fomented the riots begun in 1987, known as the first intifada.
    • Second Intifada (2000-05): In 2000, a more violent Palestine Uprising started and a large number of civilians died on both sides. This is known as the second intifada. As a defensive measure, Israel constructed a West Bank Barrier along West Bank to separate Israel and Palestine settlements.

    Road Map for Peace

    • 1993 OSLO Accord: The Oslo Accords are a pair of peace agreements between the     Government of Israel and the Palestine Liberation Organization (PLO

    1) Oslo 1 Accord: It was officially called the Declaration of Principles on Interim Self-Government Arrangements. It was signed in Washington, D.C., in 1993.

    • The accords called for the withdrawal of Israeli forces from parts of the Gaza Strip and West Bank, and affirmed a Palestinian right of self-government within those areas through the creation of a Palestinian Interim Self-Government Authority.
    • Palestinian rule was to last for a five-year interim period during which “permanent status negotiations” would commence in order to reach a final agreement.
    • Israel was to grant interim self-government to the Palestinians in phases.
    • Along with the principles, the two groups signed Letters of Mutual Recognition—the Israeli government recognized the PLO as the legitimate representative of the Palestinian people, while the PLO recognized the right of the state of Israel to exist and renounced terrorism as well as other violence, and its desire for the destruction of the Israeli state.
    • In order that the Palestinians govern themselves according to democratic principles, free and general political elections would be held for the council.
    • Jurisdiction of the Palestinian Council would cover the West Bank and Gaza Strip, except for issues that would be finalized in the permanent status negotiations. The two sides viewed the West Bank and Gaza as a single territorial unit.
    • The five-year transitional period would commence with Israeli withdrawal from the Gaza Strip and Jericho area. There would be a transfer of authority from the Israel Defense Forces to the authorized Palestinians, concerning education and culture, health, social welfare, direct taxation, and tourism. The council would establish a strong police force, while Israel would continue to carry the responsibility for defending against external threats.

    2) Oslo 2 Accord: It was called The Interim Agreement on the             West Bank and the Gaza Strip and was signed on the 28th    September, 1995 in Taba (Egypt).

    • Oslo I also set the agenda for the follow-up agreement that became known as Oslo II, which would include discussion of the future governance of the city of Jerusalem (both sides claim it as their respective capital) as well as issues concerning borders, security and the rights, if any, of Israeli settlers in the West Bank.
    • A protocol for free elections for Palestinian Authority leadership was also established.
    • Oslo II, which was signed two years later, gave the Palestinian Authority, which oversees Gaza and the West Bank, limited control over part of the region, while allowing Israel to annex much of the West Bank, and established parameters for economic and political cooperation between the two sides.
    • As part of the treaty, both sides were prohibited from inciting violence or conflict against the other.
    • Israel was to collects taxes from Palestinians who work in Israel but live in the Occupied Territories, distributing the revenue to the Palestinian Authority.
    • Israel was also to oversee the trade of goods and services into and out of Gaza and the West Bank.

    3) Aftermath of the Oslo Accords

    • Unfortunately, any momentum gained from the ratification of the Oslo Accords was short-lived.
    • In 1998, Palestinian officials accused Israel of not following through on the troop withdrawals from Gaza and Hebron called for in the Oslo Accords.
    • After initially slowing down settlement construction in the West Bank, at the request of the United States, the building of new Israeli housing in the region began in earnest again in the early 2000s.
    • Conversely, critics of the Accords said that Palestinian violence against Israeli citizens increased in their aftermath, coinciding with the increasing power of the Palestinian Authority.
    • These critics felt that the Palestinian Authority was failing to adequately police Gaza and the West Bank, and identify and prosecute suspected terrorists.
    • With these disagreements providing the backdrop, negotiators from both sides reconvened, once again at Camp David, with the hope of following up on the Oslo Accords with a comprehensive peace treaty.
    • In September 2000, Palestinian militants declared a “Second Intifada,” calling for increased violence against Israelis after Sharon, who as prime minister visited the Temple Mount—a site sacred to both Jews and Muslims.

    Camp David Accord 2000

    • The 2000 Camp David Summit was a summit meeting at Camp David between United States president Bill Clinton, Israeli prime minister Ehud Barak and Palestinian Authority chairman Yasser Arafat. The summit took place between 11 and 25 July 2000.
    • Barak put forward the following as “bases for negotiation”, a non-militarized Palestinian state split into 3–4 parts containing 87–92% of the West Bank including only parts of East Jerusalem, and the entire Gaza Strip.
    • The offer also included that 69 Jewish settlements (which comprise 85% of the West Bank’s Jewish settlers) would be ceded to Israel, no right of return to Israel, no sovereignty over the Temple Mount or any core East Jerusalem neighbourhoods, and continued Israel control over the Jordan Valley.
    • Arafat rejected this offer. According to the Palestinian negotiators the offer did not remove many of the elements of the Israeli occupation regarding land, security, settlements, and Jerusalem.

    Taba Summit (2001)

    • The Israeli negotiation team presented a new map at the Taba Summit in Taba, Egypt in January 2001. The proposition removed the “temporarily Israeli controlled” areas, and the Palestinian side accepted this as a basis for further negotiation.
    • The sides declare that they have never been closer to reaching an agreement and it is thus our shared belief that the remaining gaps could be bridged with the resumption of negotiations following the Israeli elections.
    • The following month the Likud party candidate Ariel Sharon defeated Ehud Barak in the Israeli elections and was elected as Israeli prime minister on 7 February 2001. Sharon’s new government chose not to resume the high-level talks.

    Arab Peace Initiative

    • The Arab Peace Initiative was first proposed by Crown Prince Abdullah of Saudi Arabia at the Beirut Summit (2002). The peace initiative is a proposed solution to the Arab–Israeli conflict as a whole, and the Israeli–Palestinian conflict in particular.
    • The initiative was initially published on 28 March 2002, at the Beirut Summit, and agreed upon again in 2007 in the Riyadh Summit.
    • Unlike the Road Map for Peace, it spelled out “final-solution” borders based explicitly on the UN borders established before the 1967 Six-Day War. It offered full normalization of relations with Israel, in exchange for the withdrawal of its forces from all the occupied territories, including the Golan Heights, to recognize “an independent Palestinian state with East Jerusalem as its capital” in the West Bank and Gaza Strip, as well as a “just solution” for the Palestinian refugees.
    • The Israeli government has expressed reservations on ‘red line,’ issues such as the Palestinian refugee problem, homeland security concerns, and the nature of Jerusalem.

    What led to Recent Crash

    •  In October 2020, an Israeli court ruled that several Palestinian families living in Sheikh Jarrah—a neighborhood in East Jerusalem—were to be evicted by May 2021 with their land handed over to Jewish families.
    • In February 2021, several Palestinian families from Sheikh Jarrah filed an appeal to the court ruling and prompted protests around the appeal hearings, the ongoing legal battle around property ownership, and demanding an end to the forcible displacement of Palestinians from their homes in Jerusalem.
    • In late April 2021, Palestinians began demonstrating in the streets of Jerusalem to protest the pending evictions and residents of Sheikh Jarrah—along with other activists—began to host nightly sit-ins.  In early May, after a court ruled in favor of the evictions, the protests expanded with Israeli police deploying force against demonstrators.
    • On May 7, following weeks of daily demonstrations and rising tensions between protesters, Israeli settlers, and police during the month of Ramadan, violence broke out at the al-Aqsa Mosque compound in Jerusalem, with Israeli police using stun grenades, rubber bullets, and water cannons in a clash with protestors that left hundreds of Palestinians wounded.
    • On May 10, after several consecutive days of violence throughout Jerusalem and the use of lethal and nonlethal force by Israeli police, Hamas, the militant group which governs Gaza, and other Palestinian militant groups launched hundreds of rockets into Israeli territory.
    • Israel responded with air strikes and later artillery bombardments against targets in Gaza, including launching several air strikes that killed more than twenty Palestinians. While claiming to target Hamas, other militants, and their infrastructure—including tunnels and rocket launchers—Israel has expanded its aerial campaign and struck targets including residential buildings, media headquarters, and refugee and healthcare facilities.

    Rival claims over Jerusalem

    • Both Israel and Palestine have declared Jerusalem their capital.
    • In July 1980, the Israeli Parliament passed the Jerusalem Law declaring it the country’s capital.
    • Palestinians declared Jerusalem the capital of the putative state of Palestine by a law passed by the Palestinian Authority in 2000.
    • The 1988 Palestinian Declaration of Independence also declared Jerusalem as the capital.
    • For the present, the Palestinian Authority has its headquarters in Ramallah.

    Hamas and Fatah

    • In 1987, Hamas (Islamic Militant group) for the liberation of Palestine through Jihad came into existence. It refused to recognize Israel as a country. It has received support from Iran and Syria.
    • On the other hand, Fatah, a faction of PLO under Yasser Arafat received support from Western nations.

    (Palestinians run for cover from tear gas during clashes with Israeli security forces near the border between Israel and the Gaza)

    What is happening in GAZA

    • Gaza is a densely populated strip of land that is mostly surrounded by Israel and peopled almost exclusively by Palestinians. Israel used to have a military presence, but withdrew unilaterally in 2005. It’s currently under Israeli blockade.
    • Egypt controlled Gaza until 1967, when Israel occupied it (along with the West Bank) in the Six-Day War.
    • Until 2005, Israeli military authorities controlled Gaza in the same way they control the West Bank, and Jews were permitted to settle there. In 2005, then–Israeli Prime Minister Ariel Sharon pulled out Israeli troops and settlers unilaterally.
    • Gaza is governed by the Islamist group Hamas, which formed in 1987 as a militant “resistance” group against Israel and won political power in a 2006 US-based election.
    • Hamas’s takeover of Gaza prompted an Israeli blockade of the flow of commercial goods into Gaza, on the grounds that Hamas could use those goods to make weapons to be used against Israel.
    • Israel has eased the blockade over time, but the cutoff of basic supplies like fuel still does significant humanitarian harm by cutting off access to electricity, food, and medicine.
    • Hamas and other Gaza-based militants have fired thousands of rockets from the territory at Israeli targets.
    • Israel has launched a number of military operations in Gaza, including an air campaign and ground invasion in late 2008 and early 2009, a major bombing campaign in 2012, and another air/ground assault in the summer of 2014.

    International Scenario

    Stand of USA

    • For decades, the U.S. has played a partisan role in the Israeli-Palestinian conflict.
    • It became involved shortly after World War II, joining the United Kingdom in a 1946 inquiry that recommended one hundred thousand Holocaust survivors relocate to Palestine, which would be neither a Jewish nor an Arab state.
    • The United States then became the first country to recognize Israel as a sovereign nation in 1948.
    • Shortly after the 1967 war, Israel began building settlements in some of the territories it had seized. For years, the United States officially condemned these settlements—branding them an obstacle to peace—but avoided outright calling them illegal to avoid the possibility that Israel would face international sanctions.
    • After the failed 2000 Camp David summit, Washington never made any meaningful attempt to push the Israelis to accept the two-state proposal.
    • The 2007 Annapolis conference was a failure too. The previous U.S. administration launched a peace bid which also collapsed at an early stage.
    • In 2018, the Trump administration canceled funding for the UN Relief and Works Agency, which provides aid to Palestinian refugees, and relocated the U.S. embassy from Tel Aviv to Jerusalem, a reversal of a longstanding U.S. policy.  The decision to move the U.S. embassy was met with applause from the Israeli leadership but was condemned by Palestinian leaders and others in the Middle East and Europe.
    • Biden has said he will continue the nearly two decades of , which calls for separate Israeli and Palestinian states with borders resembling those that existed before the 1967 war; this territory includes the Gaza Strip, the West Bank, and parts of East Jerusalem.

    Stand of Arab Countries

    a)   EGYPT

    • Egypt wants a unified Palestinian leadership. Therefore, it invests a lot in supporting a Palestinian reconciliation.
    • Egypt wants Gaza, the branches of Hamas and Fatah in Gaza, and other forces in Gaza, to have a bigger say in the Palestinian decision-making process.
    • Egypt wants to eradicate terror cells in Sinai.
    • Egypt wants Hamas to be less dependent (at least) on Iran, Turkey and Qatar. The Saudis and the Emiratis concur, and they can fund Gaza.

    b) Turkey

    • In December 1987, Turkey had already declared support for the Palestinians’ right to self-determination.  It described Israeli policy in the Gaza Strip as “state-sponsored terrorism”
    • The Turkish government’s condemnation of the 2008–2009 Israel–Gaza conflict strained relations between the two countries.

    c) Syria

    • Syria announced its complete support to Palestine after the 1948 Arab–Israeli War broke out, and had sent troops to fight against newly-formed Israel Defense Forces
    • Syria also joined the Six-Day War hoping to expel Israeli Army in order to restore Palestinian state, in which ended with a complete failure.

    d)  Lebanon

    • Lebanon did take a formal part in the 1948 Arab-Israeli War against Israel, but Lebanon was the first Arab league nation to signal a desire for an armistice treaty with Israel in 1949.
    • Israel also supported the secessionist Free Lebanon State during 1979-1984 and its successor South Lebanon Army.
    • In all Lebanon has maintained a pro Israeli stance.

    e)   Jordan

    • Jordan was not a member of the United Nations when the vote on the United Nations Partition Plan for Palestine was taken in November 1947, but following the establishment of the state of Israel on 14 May 1948, Jordan, then known as Transjordan, was one of the Arab League countries that invaded the former Palestinian Mandate territory precipitating the 1948 Arab–Israeli War.
    • By war’s end, Jordan was in control of the West Bank and East Jerusalem (including the Old City). It expelled its Jewish population, and formally annexed the territories in 1950.
    • Promoting peace between Israel and the Palestinian Authority is a major priority for Jordan. It supports U.S. efforts to mediate a final settlement, which it believes should be based on the 2002 Arab Peace Initiative, proposed by Saudi Arabia.

    f)    Saudi Arabia

    • Israel and Saudi Arabia do not have any official diplomatic relations.
    • Saudi Arabia played an active role in attempting to bring the Palestinians towards a self-governing condition which would permit negotiations with Israel. It has done so primarily by trying to mend the schism between Fatah and Hamas, most notably when King Abdullah invited the two factions to negotiations in Mecca resulting in the Mecca Agreement of 7 February 2007. The agreement soon failed, but Saudi Arabia has continued to support a national unity government for the Palestinians, and strongly opposed the war in Gaza in early 2009.

    3)   Stand of India

    • India was one of the few countries to oppose the UN’s partition plan in November 1947, echoing its own experience during independence a Few Months Earlier.
    • In the decades that followed, the Indian political leadership actively supported the Palestinian cause and withheld full diplomatic relations with Israel.
    • India recognised Israel in 1950 but it is also the first non-Arab country to recognise Palestine Liberation Organisation (PLO) as the sole representative of the Palestinian. India is also one of the first countries to recognise the statehood of Palestine in 1988.
    • In 2014, India favoured UNHRC’s resolution to probe Israel’s human rights violations in Gaza. Despite supporting the probe, India abstained from voting against Israel in UNHRC IN 2015.
    • As a part of Link West Policy, India has de-hyphenated its relationship with Israel and Palestine in 2018 to treat both the countries mutually independent and exclusive.
    • In June 2019, India voted in favour of a decision introduced by Israel in the UN Economic and Social Council (ECOSOC) that objected to granting consultative status to a Palestinian non-governmental organization

    Way Forward

    • Though not a shining example, Israel can learn a lesson from its neighbour, Lebanon. The sectarian model of power sharing, where Christians, Shias, Sunnis, Druze, Armenians etc. are offered government positions demographically, did help enable Lebanon transition to some degree of stability after the civil war ended in 1990.
    • There must be change in leadership in both the countries. Leaders are that are ready mentally and physically for a truce must be brought to power.

    To start a peace process following steps must be taken:

    • Israel must  end settlement expansion beyond the wall.
    • Easing restrictions on Gaza
    • Redesignating parts of the West Bank currently falling under full Israeli administration (Area C) as areas that fall under partial or full Palestinian administration (Areas B or A)
    • Removing impediments to Palestinian economic development
    • Ending home demolitions and other forms of collective punishment
    • Removing impediments to Palestinian elections in East Jerusalem, the West Bank and Gaza
    • Alleviating restrictions on movement and access
    • Gradually releasing Palestinian prisoners
    • Allowing the reopening of Palestinian institutions, such as the Orient House, in East Jerusalem

  • Cryptocurrency

    Context

    Vitalik Buterin, co-creator of the crypto network Ethereum, has made a 1 billion dollar cryptocurrency donation for India’s relief funds as the country battles the latest deadly COVID-19 wave.

    Definition

    The 2019 Bill defined cryptocurrency as any information, code, number or token, generated through cryptographic means or otherwise, which has a digital representation of value and has utility in business activity, or acts as a store of value or a unit of account. According to professionals a system must need these six points to be called a cryptocurrency system:

    • The system does not require a central authority; its state is maintained through distributed consensus.
    • The system keeps an overview of cryptocurrency units and their ownership.
    • The system defines whether new cryptocurrency units can be created. If new cryptocurrency units can be created, the system defines the circumstances of their origin and how to determine the ownership of these new units.
    • Ownership of cryptocurrency units can be proved exclusively cryptographically.
    • The system allows transactions to be performed in which ownership of the cryptographic units is changed. A transaction statement can only be issued by an entity proving the current ownership of these units.
    • If two different instructions for changing the ownership of the same cryptographic units are simultaneously entered, the system performs at most one of them.

    History/Background

    • In 1983, the American cryptographer David Chaum conceived an anonymous cryptographic electronic money called ecash. Later, in 1995, he implemented it through Digicash, an early form of cryptographic electronic payments which required user software in order to withdraw notes from a bank and designate specific encrypted keys before it can be sent to a recipient.
    • In 1998, Wei Dai published a description of “b-money”, characterized as an anonymous, distributed electronic cash system.
    • Shortly thereafter, Nick Szabo described bit gold. Like bitcoin and other cryptocurrencies that would follow it, bit gold (not to be confused with the later gold-based exchange, BitGold) was described as an electronic currency system which required users to complete a proof of work function with solutions being cryptographically put together and published.
    • In 2009, the first decentralized cryptocurrency, bitcoin, was created by presumably pseudonymous developer Satoshi Nakamoto. It used SHA-256, a cryptographic hash function, in its proof-of-work
    • In April 2011, Namecoin was created as an attempt at forming a decentralized DNS, which would make internet censorship very difficult.
    • In October 2011, Litecoinwas released. It used scrypt as its hash function instead of SHA-256. Another notable cryptocurrency, Peercoin used a proof-of-work/proof-of-stake
    • On 6 August 2014, the UK announced its Treasuryhad been commissioned a study of cryptocurrencies, and what role, if any, they could play in the UK economy. The study was also to report on whether regulation should be considered.

    Types of cryptocurrency

    • The most common and valued cryptocurrency is Bitcoin.
    • All the other cryptocurrencies other than Bitcoin are together as a set are known as alternate coins or commonly called “Altcoins”. Most famous alt coins are:-
    • Litecoin
    • Cardano
    • Polkadot
    • Stellar(XLM)
    • Binance Coin
    • By the end of March 2021 the total share of altcoins in the cryptocurrency market was estimated to be at 40% of the total market value.

    How it works?

    • Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security.

    What is Blockchain Technology?

    • Simply, blockchain is decentralized, distributed and public digital ledger.  Blockchains is a new type of network infrastructure (a way to organize how information and value move around on the internet) that create ‘trust’ in networks by introducing distributed verifiability, auditability, and consensus.
    • Blockchains create trust by acting as a shared database, distributed across vast peer-to-peer networks that have no single point of failure and no single source of truth, implying that no individual entity can own a blockchain network, and no single entity can modify the data stored on it unilaterally without the consensus of its peers.
    • New data can be added to a blockchain only through agreement between the various nodes of the network, a mechanism known as distributed consensus. Each node of the network keeps its own copy of blockchain’s data and keeps the other nodes honest – if one node changes its local copy, the other nodes can reject it.
    • Imagine a blockchain as a ledger—because that’s essentially how most blockchains function. Each block of data represents some new transaction on the ledger, whether that means a contract or a sale or whatever else you’d use a ledger for.
    • Interestingly, blockchains leverage techniques from a field of mathematics and computer science, known as cryptography, to sign every transaction (e.g. the transfer of assets from one person to another) with a unique digital signature belonging to the user who initiated the transaction.

    Advantages

    • Low transaction Fee: Because miners are simply rewarded cryptocurrency from network itself, there are typically little or no fees for core transactions.
    • Ownership: With your digital key, access to your currency is yours alone. Unlike money you store at a bank, your use of cryptocurrency cannot be frozen or limited by any entity.
    • Identity Protection: Paying with credit/debit cards requires submitting sensitive banking information that could be stolen or compromised. Cryptocurrency can be sent directly to a recipient without any information other than total amount you want to send.
    • Risk-free for sellers: Payments using Cryptocurrency can’t be reversed, which means merchants don’t have to worry about stopped payments. The blockchain makes it difficult for you to be defrauded.

    Disadvantages

    • Privacy Concerns: The privacy of users’ data is at stake. There is concern regarding privacy of users data in using cryptocurrencies as all the transaction information is stored in distributed ledger (called blockchain), which is publicly visible. Thus Hacker can easily observe how the money flows.
    • High Volatility: The price of Bitcoin suddenly rose to almost $20,000 and then dropped to $6,000. Due to such incidents, it is complicated for the investors to trust the ecosystem.
    • Destination for black money: The fear among regulators and policymakers is that cryptocurrencies, being an alternative source of value to fiat currency, could be misused to launder black money or finance terrorist activities.
    • Cybersecurity Concerns: Cryptocurrencies are prone to cybersecurity breaches and hacks. Various attacks are common, even companies and governments are not full proof to them. For example, the Swiss blockchain company, Trade.io, has reported that crypto tokens worth almost $8 million have been stolen from their cold wallet.
    • Dark activities: The possibility that the new money will nurture illicit activities and markets like drug selling, weapons etc. through Darknet is always high using cryptocurrency anonymously. It also increases the risk of its use in various terrorist activities across the border.
    • Monetary control and economic behavior: It could dramatically change global monetary policymaking. People will exchange their national currencies for the new digital coin in order to buy and sell the many products that will be priced in it. This will further impact the profit of banks and will put stress on their balance sheet.
    • Inflation: Governments and policymakers will have reduced ability to control inflation. Usually, when inflation picks up, central banks take steps to control it through various monetary rates. Cryptocurrency will be out of control of the central bank so liquidity control will be an issue.

    Cryptocurrency and India

    • The country, at present, has around 75 lakh cryptocurrency investors who have together pooled over Rs 10,000 crore into Bitcoins and other such digital currencies.
    • The prices have surged by over 900%, courtesy of the worldwide boom – a single bitcoin that used to cost around Rs 4 lakh in 2020 now costs somewhere around Rs 41 lakh now.
    • FM Nirmala Sitharaman has said that the Centre will take a “calibrated approach” and leave a window open for experiments with blockchain technology.

    Legitimacy of Cryptocurrency in India

    • Finance minister Arun Jaitley, in his budget speech on 1 February 2018, stated that the government will do everything to discontinue the use of bitcoin and other virtual currencies in India for criminal uses.
    • He reiterated that India does not recognise them as legal tender and will instead encourage blockchain technology in payment systems. “The government does not recognise cryptocurrency as legal tender or coin and will take all measures to eliminate the use of these cryptoassets in financing illegitimate activities or as part of the payments system,” Jaitley said
    • In early 2018 India’s central bank, the Reserve Bank of India(RBI) announced a ban on the sale or purchase of cryptocurrency for entities regulated by RBI
    • In March 2020, the Supreme Court of India passed the verdict, revoking the RBI ban on cryptocurrency trade.
    • In 2021, the government is exploring the creation of a state-backed digital currency issued by the Reserve Bank of India, while banning private ones like bitcoin.

    Cryptocurrency Bill India 2019

    • Cryptocurrency cannot be used as a legal tender or currency at any place in India.
    • The bill prohibits everyone to mine, generate, hold, sell, deal in, issue, transfer, dispose of or use cryptocurrency in the territory of India.
    • The central government is allowed to declare Digital Rupee to be the legal tender with the consent of Reserve Bank of India.
    • The use of Distributed Ledger Technology (DLT) for creating a network for delivery of any financial or other services or for creating value , without involving any use of cryptocurrency is not prohibited.
    • Direct or indirect use of cryptocurrency shall be punishable with fine or imprisonment of 1 year which may be extended o 10 years or both.
    • The court is empowered to transfer any fees recovered to the consolidated fund of India.
    • The central government on the recommendation of the investigating agency without being bound to it is empowered to grant immunity for any offense under this act.
    • The bill also provides that no such immunity can be granted by the central government in cases where the proceedings for any such offence have been instituted before the date of receipt of application for grant of such immunity.
    • The Bill promises to “allow for certain exceptions to promote the underlying technology of cryptocurrency (blockchain) and its uses.”
    • The way the technology is built, an ownerless, consensus-driven, distributed ledger like a blockchain needs cryptocurrency to grease its wheels.

    International Scenario

    United states of America

    • The U.S. has the highest number of cryptocurrency users, the highest number of Bitcoin ATMs and also the highest Bitcoin trading volumes globally.
    • The US government, in 2013, accepted bitcoin as a decentralized virtual currency that can be used for performing transactions. It was classified as a commodity by CFTC in September 2015.
    • Bitcoin is also taxable as a property. To sum up, bitcoin is legal in the USA, however, there is no clarification about the legalization of other cryptocurrencies.

    Japan

    • Japan has eliminated the consumption tax on Bitcoin trading on April 1, 2017, when it officially declared Bitcoin as a legal tender. Japan also eliminated the possibility of double taxation on trading of Bitcoins.
    • Japan is now widely considered a hub for cryptocurrency trading/exchange in Asia.

    Canada

    • Bitcoin is viewed as a commodity by the Canada Revenue Agency (CRA).  This means that Bitcoin transactions are viewed as barter transactions, and the income generated is considered as business income. The taxation also depends on whether the individual has a buying-selling business or is only concerned with investing.
    • Canada considers Bitcoin exchanges to be money service businesses. This brings them under the purview of the anti-money laundering (AML) Bitcoin exchanges need to register with Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)
    • In addition, some major Canadian banks have banned the use of their credit or debit cards for Bitcoin transactions.

    European Union

    • On Oct. 22, 2015, the European Court of Justice (ECJ) ruled that buying and selling digital currencies is considered a supply of services, and that this is exempt from value-added tax (VAT)in all European Union (EU) member states.
    • Some individual EU countries have also developed their own Bitcoin stances.
    • In Finland, the Central Board of Taxes (CBT) has given Bitcoin a VAT exempt status by classifying it as a financial service. Bitcoin is treated as a commodity in Finland and not as a currency.
    • The National Revenue Agency (NRA) of Bulgaria has also brought Bitcoin under its existing tax laws.
    • Germany is open to Bitcoin; it is considered legal but taxed differently depending upon whether the authorities are dealing with exchanges, miners, enterprises, or users.

    China

    • Bitcoin is essentially banned in China. All banks and other financial institutions like payment processors are prohibited from transacting or dealing in Bitcoin. Cryptocurrency exchanges are banned.
    • The government has cracked down on miners.

    Way Forward

    • A worldwide regulatory authority must be established to control the volatility, security and inflation of the cryptocurrency market.
    • While the number of merchants who accept cryptocurrencies has steadily increased, they are still very much in the minority. For cryptocurrencies to become more widely used, they have to first gain widespread acceptance among consumers.
    • The more popular they become, the more regulation and government scrutiny they will likely to attract, which erodes the fundamental premise for their existence. And therefore the central authority must be made so in keeping mind that the fundamental of the cryptocurrency existence must not be mended.
    • For cryptocurrencies to become part of the mainstream financial system must :
      • Be made mathematically complex (for frauds and hackers) but graphically easy for the users to make them understand better.
      • Be Decentralized but with adequate consumer safeguards and protection.
      • Preserve user anonymity without being a conduit for tax evasion, money laundering and other nefarious activities.