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General Studies 2021 GS Paper I 15 marks 250 words Compulsory Explain

GS Paper I — Q19

What is Cryptocurrency ? How does it affect global society ? Has it been affecting Indian society also ? (Answer in 250 words) 15

हिंदी में प्रश्न पढ़ें

क्रिप्टोकरेंसी क्या है ? वैश्विक समाज को यह कैसे प्रभावित करती है ? क्या यह भारतीय समाज को भी प्रभावित कर रही है ? (250 शब्दों में उत्तर दीजिए)

Q19 of the 2021 UPSC Mains General Studies GS Paper I, as printed
The question as printed in the 2021 General Studies paper
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Model answer

Written by UPSC Answer Check against this question's marking rubric, to the 250-word length. UPSC does not publish answers for Mains — this is one way to score well, not an official key.

Cryptocurrency is a decentralised digital currency secured by cryptography and anchored on distributed ledger technology (blockchain). Unlike sovereign fiat currency issued by central banks, it operates through peer-to-peer consensus mechanisms without reliance on trusted financial intermediaries.

Impact on Global Society

Cryptocurrencies transform international finance by lowering costs for cross-border remittances and offering financial access to unbanked populations. However, pseudo-anonymity facilitates sanctions evasion, illicit trade, and terror financing, while energy-intensive proof-of-work mining creates severe environmental burdens. Geopolitically, responses diverge: El Salvador adopted Bitcoin as legal tender to reduce remittance frictions, China enforced a blanket ban on mining and trading, and the United States pursues rigorous regulatory oversight through securities and tax laws.

Impact on Indian Society

India’s engagement shifted significantly after the Supreme Court (2020) overturned the Reserve Bank of India’s (RBI) 2018 circular restricting banking support, followed by the Finance Act introducing a 30% tax and 1% TDS on Virtual Digital Assets.

Domestically, high market volatility has fostered speculative trading among urban youth, often exposing retail investors to deceptive Ponzi schemes and cyber fraud. The technology also creates macroeconomic risks, notably illicit capital flight and the circumvention of foreign exchange controls. To mitigate these disruptions, India used its 2023 G20 Presidency to push for a synthesised global regulatory roadmap and promoted indigenous digital public infrastructure, like UPI, as robust alternatives.

While private cryptocurrencies present acute risks to consumer protection and macroeconomic stability, distinguishing the asset from its underlying technology enables sovereign alternatives. Deploying Central Bank Digital Currencies (CBDC—e-Rupee) provides a secure path toward financial digitisation without sacrificing monetary sovereignty.

What "Explain" is asking you to do

Make the working of something clear — what sets it off, what follows from what, and what it produces. Explain is the Commission's mechanism word: it dominates the technical papers and the “explain why” stems, where the marks sit in the causal chain and not in the label.

Structure that answers it

State what it is → the initiating condition → the chain of cause, step by step → an instance where it plays out → what the chain produces

Where marks are lost

Describing what something looks like instead of why it works that way. Naming the stages without linking them reads as description too.

All UPSC directive words, compared →

How this answer will be evaluated

Approach

Framework: GS1 Society & Technology. explain: definition/context > points in order > small example > short close Full marks: Precise definition, clear global/Indian distinction, and specific regulatory references.

Key points expected

  • Define cryptocurrency as decentralized digital asset
  • Explain global impact on financial inclusion
  • Analyze global impact on monetary policy
  • Assess specific impact on Indian society

Evaluation rubric

Each sub-part is marked on its own, against the marks and word limit printed on the paper.

  1. The answer Define crypto, analyze global societal impact, and assess specific effects on Indian society.  · 250 words

    explain— definition/context → points in order → small example → short close

    Must cover

    • Define cryptocurrency as decentralized digital asset
    • Explain global impact on financial inclusion
    • Analyze global impact on monetary policy
    • Assess specific impact on Indian society

    Loses marks

    • Narrating history of Bitcoin
    • Emotive language on 'digital gold'
    • Ignoring the Indian context

    Earns more

    • Mention blockchain technology mechanism
    • Reference RBI's regulatory stance
    • Discuss tax implications in India
    • Note volatility as a risk factor

    Extra mark

    • Cite specific Indian crypto tax rate
    • Reference a specific RBI circular

Practice this exact question

Write your answer and it is marked point by point against the model answer above — what you covered, what you missed, what you got wrong.

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