Previous Year Question
With reference to ‘Bitcoins’, which of the following statements is/are correct?
Bitcoins are tracked by the Central Banks of the countries.
Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address.
Online payments can be sent without either side knowing the identity of the other.
Select the correct answer using the code given below.
1 and 2 only
2 and 3 only
3 only
1, 2 and 3
Correct Answer: B
Detailed Solution
Statement 1 is incorrect. Bitcoin is not issued, controlled or administered by a central bank. It operates through a decentralised peer-to-peer network based on blockchain technology.
Bitcoin transactions are validated by network participants and recorded on a distributed ledger called the blockchain. Therefore, it is incorrect to say that Bitcoins are tracked or administered by the central banks of countries.
A distinction must be made between:
Recording each Bitcoin transaction on the blockchain; and
Issuance or control of the Bitcoin network by a central bank.
The first is correct, while the second is not. Governments and investigating agencies may analyse blockchain data, but such analysis does not make Bitcoin a central-bank-operated currency.
Statement 2 is correct. A person controlling a Bitcoin address can send Bitcoin to and receive it from another Bitcoin address in accordance with the network protocol. The relevant private key is used to authorise an outgoing transaction.
The private key is the basis of control and transaction authorisation. A Bitcoin address is not fully equivalent to a bank-account number because the Bitcoin network has no central bank or central account administrator.
Statement 3 is correct. A Bitcoin payment can technically be made without the two parties knowing each other’s real-world identity. The transaction can take place between Bitcoin addresses.
Bitcoin should not, however, be described as completely anonymous. It is more accurately described as pseudonymous because:
Bitcoin transactions are recorded on a public blockchain.
Sending and receiving addresses are visible.
Transaction amounts and timing can be analysed.
If an address is linked to a KYC-compliant exchange or an identifiable person, related transactions may be traced.
Thus, Statement 3 is correct in the examination context—the parties can transact without knowing each other’s real identity—but this does not mean that transactions are completely secret or untraceable.
Current position (2026)
Regulatory monitoring of virtual assets has increased substantially since 2016. Under FATF standards, Virtual Asset Service Providers—VASPs are subject to AML/CFT measures such as customer due diligence, transaction monitoring and suspicious-transaction reporting.
Nevertheless, Bitcoin is not a sovereign currency issued by a national central bank. The RBI has also not declared it to be RBI-issued currency or legal tender in India. The ability to analyse blockchain transactions is different from central-bank issuance or control of Bitcoin.