Dr Sunil Bhardwaj
A cryptocurrency or crypto is a virtual currency secured by cryptography. It is designed to work as a medium of exchange, where individual ownership records are stored in a computerised database. The defining trait of a cryptocurrency is that they are not issued by the Government agency of any country making them immune against any Government interference and manipulation. Bitcoin is the first known digital currency which was created as the first decentralised cryptocurrency in 2009 by Japanese developer/developers Satoshi Nakamoto, presumed pseudonymous. He has developed the first blockchain database and authored the bitcoin white paper that acts as a reference for its development and implementation. A cryptocurrency, crypto-currency, or crypto is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerised database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.
The Indian Government is going to table Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 in the upcoming winter session of parliament. The main aim of the bill is to create a facilitative framework for the creation of the official digital currency of RBI and to prohibit all private cryptocurrencies in India. The bill intends to create an ecosystem for the promotion and use of blockchain technology in the country. Initially, in response to a few cases of fraud in cryptocurrency, RBI issued a notice in April 2018 banning all banks from supporting crypto-related transactions. However, the Supreme Court had struck down the ban under Article 19(1)(g) of the Indian Constitution in March 2020 citing that cryptocurrencies are not illegal though unregulated in India. The crypto community welcomed the decision of the Hon’ble Supreme Court which has opened the doors of the blockchain revolution in the country.
Today, India is among the top five countries in the world in terms of crypto adoption and surprisingly the majority of investors are in the 18 to 44 years age group as per Finder’s Cryptocurrency Report 2021. As a result of huge investment going into it, India’s digital currency market rose to worth $6.6 billion in May 2021 from $923 million in April 2020, according to blockchain data analytics firm Chinalysis. Many experts believe that the crypto market is still nascent in India and an unregulated market will create uncertainty and risk and is no good for the economy in the long run. The RBI’s Governor Shaktikanta Das also has some apprehensions about the exaggerated crypto figures and believe that the crypto market has far deeper implications for the macro-economic and financial stability of the country. Whereas many economists and financial experts think that, stringent regulations obstruct the growth and innovation in blockchain technology which can be a future technology, yet not sure but the fact can’t be denied. Faced with this troublesome dilemma, the Indian Government has taken a progressive stand on the future of blockchain technology in the country. The Parliamentary Standing Committee for Finance has reiterated that it is not going to outrightly ban but regulate the crypto market in the country to protect the interest of investors and other market participants. It seems a part of the government’s distinctive and calibrated approach towards boosting the growth of the crypto market not only to gain tax revenues but also to boost the blockchain revolution without compromising on the country’s monetary stability and sustainability. Many banks across the globe are analysing the feasibility of the introduction of digital money and its impact on the monetary system of the country. Similarly, The Reserve Bank of India is working on its centralised digital currency. Central bank digital currency (CBDC) will be based on blockchain technology and is backed by the central bank as a legal tender.
Arguments in Favour of crypto-currency
* It’s a new system of payments and investment which is cheaper, faster and efficient with minimal processing fees.
* Funds transfer between two parties will be convenient and fast without the need for a third party like credit/debit cards or banks.
* Crypto transactions are theoretically immune to Government interventions and inflation.
* Payments are safe and secured and offer an unprecedented level of anonymity.
* Modern cryptocurrency systems come with a user “wallet” or account address which is accessible only by the private key. The private key is only known to the owner of the wallet
Arguments against crypto-currency
* The almost hidden nature of cryptocurrency transactions makes them easy to be the focus of illegal activities such as money laundering, tax evasion and possibly even terror-financing
* The crypto market is highly volatile leading to enormous profits and losses very quickly.
* It’s a global market operating 24/7, the country-specific regulatory system has limited control over price.
* It is based on blockchain technology which is not easy to understand.
* Mining cryptocurrency involves large consumption of energy thus have environmental implications. Some research, however, has identified that the cost of producing a Bitcoin, which requires an increasingly large amount of energy, is directly related to its market price.
* Cryptocurrencies are not accepted everywhere and have limited value.
* There is concern that cryptocurrencies like Bitcoin are not rooted in any material goods or backed by any central authority.
Today, the worldwide crypto market is worth more than USD 2 trillion, where bitcoin is unquestionably dominating the crypto arena and is trading at its all-time high of Rs 54,00,000 whereas Ethereum, Binance, Cardano, Ripple etc are following the trail. In June 2021, El Salvador became the first country to accept Bitcoin as legal tender, after the Legislative Assembly had voted 62-22 to pass a bill submitted by President Nayib Bukele. Analysing the future scope of blockchain technology many countries across the globe including Australia, Canada, Germany, USA, UK, European Union, Japan, Mexico, Spain etc have shown a progressive stance and have developed or are in the process of developing cryptocurrency regulatory framework. On the contrary, China has perceived cryptocurrency as a threat to the domestic financial system due to high volatile nature of the market and has announced a blanket ban on all sorts of crypto mining and fundraising activities through initial coin offerings and has ordered the closure of all crypto-exchanges in the country. Earlier, China’s central bank has barred all banking and financial institutions in the country to handle bitcoin transactions. The market has shown a negative reaction to Chinese interventions as witnessed by bearish activities in the crypto market.
Against the backdrop of all the facts and chain of events, the confusion still gloams the minds of investors and market participants about the future of cryptocurrency in India. Some typical questions which hover in their minds remain; What will be the Government’s definition of private cryptocurrencies? Who will regulate the crypto market RBI or SEBI? Whether the Government is going to consider cryptocurrencies as legal tender or a financial asset? How Government is going to deal with existing crypto investors? Whether the banks are allowed to deal in crypto-related transactions or it will be done by payments apps and wallets? what will be the Government’s taxation policy related to crypto investments? and many more. I believe that the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 will at least address all the above queries and lift the curtains from the future of cryptocurrency in India. At this juncture of time, the government has a limited choice to ban the crypto market but to regulate it effectively.
(The author is Faculty of Business Studies University of Jammu)