India not ready for cryptos, for now

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India not ready for cryptos, for now

Thursday, 23 December 2021 | ASHWANI MAHAJAN

India not ready for cryptos, for now

The fast price fluctuations in the value of Bitcoins and other types of cryptos and their ever-increasing demand successfully attracts the youth

Recently, the Government has announced the introduction of ‘Cryptocurrency and Government Digital Currency Bill 2021’ in the ongoing winter session of Parliament. It is clear from the details of the bill that the government intends to ban private cryptocurrencies and issue digital currency through Reserve Bank of India. Although the draft of the bill has not been made public, as per the details in public domain, the government is willing to give some relaxation to encourage the technology underneath these cryptocurrencies. With this, panic has spread among the people engaged in crypto business.

The craze for cryptocurrencies has been increasing in the country and the world. In India, both the Union Government and the Reserve Bank had long been of the opinion that cryptocurrencies are illegal. Therefore, their transactions were not being given legal recognition. Reserve Bank of India issued a notice, asking banks to distance themselves from the transactions of cryptocurrencies and warn their customers about the same. Then the Supreme Court ruled that since the government has not banned cryptocurrencies legally, the instructions passed on to banks are not legally tenable. With this, crypto exchanges started trading cryptocurrencies on a large scale. Although there is no official information about this, it is estimated that about 20 million people have put their money in cryptocurrencies. People (mostly youth) of small and big cities and even villages are getting attracted towards it, because they feel that they can get quick profit by putting their money in it. It is being said that a total of Rs 6 lakh crore has been parked in cryptocurrencies in India.

Crypto is actually the product of a new computer technology called blockchain. It is said that the first cryptocurrency named ‘Bitcoin’ came into existence in the year 2009 through open-source software. The experience of this technology so far has been that nothing is known about the origin and creator of the current cryptocurrencies. Not only that, if someone illegally obtains crypto, it is not possible to trace the same.

Blockchain technology is behind cryptocurrency creation (also known as coin mining). The development of technology is a continuous process. Blockchain technology has many phenomenal advantages. This technology can help in improving many of the civic amenities including health, education, agriculture, land records etc. However, the question is, is it necessary to adopt crypto too, in the name of this technology?

Proponents of crypto claim that mining of cryptocurrency serves as an incentive for the development of blockchain technology. Therefore, their argument is that crypto and blockchain technology cannot be separated. However, detractors of crypto, while supporting underneath technology, argue that crypto should not be a prerequisite for using block chain technology. It is true that incentive is necessary for any action, but that incentive must be legal and moral. Current cryptocurrencies do not meet this condition, as they are not legal and there are many ethical issues about them.

Why continuation of present day cryptos is not right? First of all, it is a wrong notion that cryptocurrency is a currency. Currency means an instrument issued by the central bank and guaranteed by the government. Cryptocurrencies are privately issued virtual coins that have no legal recognition. For this reason, the value of crypto is expressed only in the form of a fiat currency. Significantly, in the early days of Bitcoin, the value of ten Bitcoins was equal to one pizza, which has increased to more than $50,000 by now.

Secondly, crypto is being used by criminals, terrorists, smugglers and persons involved in hawala. Recently, when cybercriminals blew up the data of many companies through a computer virus all over the world and ransom was demanded in Bitcoins, to return the same, the world became aware of the criminal use of Bitcoin.

Thirdly, the real value of this virtual asset is known only to its holders. Authorities will come to know only when it is transacted through a bank. Although it can be taxed when its transaction is declared; however, if it is sold abroad and not in the country, then it will not be taxed. In fact, crypto is not a legal asset and therefore, cannot be shown in the balance sheet of a company or an individual. That is, crypto is becoming a medium for evasion of income tax, GST and many other types of taxes. There is yet another problem that it is the most convenient method to transfer capital from the country bypassing rules.

Fourthly, due to the fast price fluctuations in the value of Bitcoin and other types of cryptocurrencies and their ever-increasing demand, the youth is getting attracted towards it. Fluctuations in its value encourage betting in Bitcoin. A huge amount of the country’s money is being put into this. It is like a dark web, because where is this money going, in whose pocket it is going, nobody knows anything. Imagine, if the same money is invested in productive assets for the development of the country, we can help increase our Gross Domestic Product(GDP). It is being said that capital formation in the country has been decreasing for some time now, with more money going into purchase of cryptocurrencies, productive investment could further get eroded.

Fifth, one of the major arguments against crypto is that its mining consumes huge amount of electricity, which can lead to power shortages. This is the biggest argument China has made in banning crypto.

Supporters of cryptos also concede that it is necessary to regulate crypto. But they say that cryptos should be recognized and then regulated. There is also a section of crypto opponents who believe that although it is good to ban it, its ban would not be practical, because this ban cannot be implemented.

But there is also a section of people in the country which believes that crypto should be banned as they promote illegalities and it is possible to impose ban. They cite the example of China, where the Chinese government has moved to ban crypto and issue state-run digital currency. America is also ready to walk on the same path. Even in India, prior to the judgement allowing crypto exchanges, crypto transactions were very minimal.

Banning crypto should not detract from its underlying technology. Blockchain technology can be used even then. Even if the logic of the people involved in this business is to be accepted that it will be necessary to incentivise the development of this technology, this incentive can still be provided through digital currencies issued by the government, rather than any private crypto. Government digital currency can not only be used for transactions in the country, but it can also have a global demand. The price of Government digital currency can also be kept stable doing away with any incentive for betting and gambling.

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