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Q66 (IAS/2016) Economy › Money, Banking & Inflation › Digital currency payments Official Key

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.

Result
Your answer: —  ·  Correct: B
Explanation

The correct answer is option B (statements 2 and 3 only).

**Statement 1 is incorrect**: The major point of difference between fiat currency and virtual currency is that while the former is expressly guaranteed by the Central Government, the latter has no such backing.[1] Crypto currencies are not issued by Government or RBI but rather encryption techniques are used to both create and control the number of units and verify its exchange.[2] Since cryptocurrencies like Bitcoin operate independently of central banks and governments, they are not tracked by Central Banks.

**Statement 2 is correct**: Every user has a public address used to buy, sell, or transfer bitcoin[3], which means anyone with a Bitcoin address can transact with anyone else who has a Bitcoin address in the decentralized network.

**Statement 3 is correct**: It is possible to send and receive bitcoins without revealing any personally identifiable information.[3] The anonymity in use of cryptocurrencies may actually facilitate several illegal activities like terror funding, smuggling, drugs trade, money laundering and other criminal activities.[4] This confirms that Bitcoin transactions can occur without either party knowing the real-world identity of the other.

Sources
  1. [1] https://prsindia.org/files/bills_acts/bills_parliament/1970/Report%20of%20the%20Inter-Ministerial%20Committee%20on%20Virtual%20Currencies.pdf
  2. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > What are Crypto currencies? > p. 77
  3. [3] https://www.ice.gov/sites/default/files/documents/Report/2017/CSReport-13-2.pdf
  4. [4] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > CRYPTOCURRENCIES > p. 160
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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. With reference to 'Bitcoins', sometimes seen in the news, which of the following statements is/are correct? 1. Bitcoins are tracked by th…
At a glance
Origin: Books + Current Affairs Fairness: Low / Borderline fairness Books / CA: 3.3/10 · 3.3/10
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This question tests the 'Raison d'être' (reason for existence) of the technology rather than trivia. If you knew the single core definition of Bitcoin—'Decentralized'—Statement 1 becomes an immediate falsehood, making the answer obvious. It is a conceptual check, not a current affairs memory test.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Are Bitcoins tracked by the central banks of countries?
Origin: Weak / unclear Fairness: Borderline / guessy
Indirect textbook clues
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > CRYPTOCURRENCIES > p. 160
Strength: 5/5
“A cryptocurrency is a digital money transferred over the internet. Cryptocurrencies are based on the decentralized ledger-based blockchain technology which seeks to make the currency system decentralized, unlike the present government-issued centralized form. Some popular cryptocurrencies are Bitcoin, Ethereum, etc. However, the cryptocurrencies have the following disadvantages: • These are not backed by any physical assets, unlike the gold reserve in case of fiat currencies. • It is still prone to hacking, and there have been instances of theft of Bitcoins from digital wallet, making them risky. • The anonymity in use of cryptocurrencies may actually facilitate several illegal activities like terror funding, smuggling, drugs trade, money laundering and other criminal activities.”
Why relevant

Defines cryptocurrencies as based on a decentralized blockchain, unlike government-issued centralized money.

How to extend

A student could combine this with knowledge that decentralization means no single authority (like a central bank) controls the ledger, so central banks would lack built‑in control to 'track' all transactions.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Why RBI launched e-Rupee? > p. 78
Strength: 4/5
“• Many Central Banks are worried that the widespread adoption of these independent crypto currencies could weaken their control over the financial system. This could cause financial instability especially because crypto currencies do not have the legal or the regulatory safeguard that the Central Bank money does, so why not issue a digital currency of their own.• Central banks seek to meet the public's need for digital currencies, manifested in the increasing use of private virtual currencies, and thereby avoid the more damaging consequences of such private currencies.• Central banks, faced with dwindling usage of paper currency, seek to popularize a more acceptable electronic form of currency like e-rupee.”
Why relevant

States many central banks are worried that independent cryptocurrencies could weaken their control over the financial system.

How to extend

One can infer that if central banks lack control they may also lack comprehensive ability to track such currencies without extra measures (e.g., regulation or monitoring tools).

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 10.Oversight of payment and settlement systems > p. 70
Strength: 4/5
“The central bank of any country is usually the driving force in the development of national payment systems. The Reserve Bank of India (RBI) as the central bank of India has been playing this developmental role and has taken several initiatives for Safe, Secure, Sound, Efficient, Accessible and Authorised payment systems in the country. In India, the payment and settlement systems are regulated by the Payment and Settlement Systems Act, 2007 (PSS Act). In terms of Section 4 of the PSS Act, no person other than RBI can commence or operate a payment system in India unless authorised by RBI.”
Why relevant

Says central banks drive development and regulate national payment and settlement systems, and operation requires central bank authorization.

How to extend

A student could note that authorized payment systems are monitored, so private, unauthorized crypto payment networks may fall outside normal central bank oversight and tracking regimes.

Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > Central bank > p. 38
Strength: 3/5
“Central Bank is a very important institution in a modern economy. Almost every country has one central bank. India got its central bank in 1935. Its name is the 'Reserve Bank of India'. Central bank has several important functions. It issues the currency of the country. It controls money supply of the country through various methods, like bank rate, open market operations and variations in reserve ratios. It acts as a banker to the government. It is the custodian of the foreign exchange reserves of the economy. It also acts as a bank to the banking system, which is discussed in detail later.”
Why relevant

Lists central bank functions like issuing currency and controlling money supply — i.e., central banks handle official, legal tender.

How to extend

Using that distinction, a student could reason that assets not issued as legal tender (like Bitcoin) are not part of the central bank's core issuance/monitoring role and so may not be 'tracked' in the same manner.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > SHADOW BANKING > p. 188
Strength: 3/5
“It comprises a set of markets and institutions that operate partially (or fully) outside the traditional commercial banking and are either lightly regulated or unregulated. Simply, it is not illegal; it is just not strictly monitored as Commercial Banks are monitored by the RBI. Examples include Housing Finance Companies (HFCs), Retail-NBFCs and Liquid Debt Mutual Funds (LDMFs). Shadow Banks do not have direct access to central bank liquidity. The shadow banking system is highly leveraged with risky and illiquid assets, whereas its liabilities are disposed to 'bank run'. Please Note: Bank Run occurs when many clients withdraw their money from a bank because they believe the bank may become insolvent or cease to function in near future. wo even there”
Why relevant

Explains some financial actors operate outside strict central bank monitoring (shadow banking) and thus are not directly within central bank liquidity channels.

How to extend

By analogy, a student could treat decentralized crypto networks as similarly outside direct central bank systems, suggesting limited direct tracking by central banks.

Statement analysis

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Statement analysis

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