The Future of Cryptocurrencies in India
By Pratiksha Biswal
Cryptocurrencies are digital currencies which use multiple encryption techniques in order to regulate the generation of currency units and also to verify the transfer of funds. They operate independently without the need of a central bank. In the year 2009, with the introduction of Bitcoin, cryptocurrency took a big step from being an academic concept to a virtual reality. Since then it has gained huge amount of sponsorship from various investors for the purpose of research, development and application. Cryptocurrencies are also a media hit especially when they reached a value of $266 per Bitcoin, recording the highest till that time frame. Cryptocurrencies are bet and auctioned upon not only by individual entities but also by huge national and international companies. For instance, Amazon and Microsoft have been betting in multiple Block chain. The use of cryptocurrencies has been banned by countries like China, Turkey and Sweden but, on the other hand countries like England and Switzerland have not only accepted the use of cryptocurrencies, but also encrypted, designed and launched their own cryptocurrencies. Most of these countries are developed in nature, but for a developing country like India, crypto currency seems to yet be a struggling idea.
On the 6th of April 2018, the Reserve Bank of India (RBI) circulated an order stating that the entities that were related to and connected with the Reserve Bank of India were prohibited from providing any services, including the purchase and sale of virtual currency. This was made compulsory because there had been no study that was conducted to evaluate the effect of cryptocurrencies on the Indian economy. On 23rd of July, 2019 a committee was formed by the Reserve Bank of India which proposed a draft bill—Banning of Cryptocurrency and Regulation of Digital Currency Bill that warned every individual about the risks that were associated with the holding of virtual currency
Bitcoin is a decentralized currency which means that it is completely free from government regulation and there is no regulatory body that has been formed in order to evaluate and entail the risk and value of cryptocurrencies in order to make the value of Bitcoin stable and safe for the Indian economy. Bitcoin is made through a process called as the Bitcoin Mining which is a mathematical puzzle that is solved in the Global Bitcoin Network and then is transferred and executed. Cryptocurrencies vary from fiat money in multiple ways like fiat money is considered to be a legal tender source and is regulated by the government while, cryptocurrencies are considered illegal without any kind of government backing. When the economy is in the state of depression or inflation, the national floating currency of the nation is used in order to regulate and form multiple monetary policies but, Bitcoin lacks such support mechanisms in multiple countries. Bitcoin is backed by and is wholly dependent on their investors and clients in order to regulate their investments and also keeps the currency floating.
The use of digital currency is done mainly for the purpose of avoiding any form of money extortion, corruption and laundering but, with the use of Bitcoin without any regulation and support mechanism, this virtual currency has also now become a host for multiple illicit activities like money laundering, drug dealing, smuggling of arms and ammunitions from other foreign countries. One such instance has been that of Korea who functions its own weapon programming through stolen cryptocurrencies. Mt. Gox’s, the largest Bitcoin Exchange holder has their account frozen by the Department of Homeland Security in May 2013 for breaking the anti-money laundering laws.
Cryptocurrencies are harmful not only for the economy but also for the environment as a whole. On the basis of a study conducted by the Technical University of Munich, Germany it was found out that the process of Bitcoin Mining emits 22 megatons of carbon dioxide and this amount of emission has quadrupled itself in the year 2018, making it unsustainable and harmful to the environment as it contributes majorly to the global warming and the drastic climate change at a global scale.
Cryptocurrency has multiple other types other than just Bitcoin. These cryptocurrencies include Litcoins, Ripple and Mintchip. Cryptocurrencies helps to reduce the cost of printing and distribution of fiat money in the economy and reduces the level of corruption, extortion and black money if it is regulated well and is backed by the full support of the government. One of the major advantages of cryptocurrencies is that it is entirely transparent in nature and everyone, excluding the owner, can have a record of the transactions that are done. This transparency in the transactions is highly helpful for the small businesses as it can easily access and receive money from all over the globe without any government restrictions and regulations. Various social media handles are also encouraging the use of cryptocurrencies for an efficient functioning of the economy. For instance, Facebook proposed Libra which would help to solve the international payments of users and investors without the use of Dollars, Pounds and Euros. The greatest limitation and risk of cryptocurrency is that the current world is a technology driven world and hence, it becomes very easy to hack and erase the information that is necessary. For a developing country like India with a major population being rural, it becomes crucial for the citizens to be aware of this technology. The biggest cost associated with this technology for India is the spread of awareness, campaigns and workshops that will have to be conducted in order to ensure the proper usage and knowledge about this technology in order to make sure that cryptocurrencies prosper in the Indian economy.
In order to be a part of the Indian financial system, cryptocurrency must be accepted and provided adequate amount of safety, security and protection from the government for any kind of risk that is associated with it. They should be made non-tax deductible and anonymous in nature to ensure the decentralization of these cryptocurrencies. The role of the government is negligible in nature because, an increase in the government regulations would lead to an increase in the level of corruption, taxes and would cause the same scenario havoc like the fiat money of the economy. A complete research study must be processed with in order to make cryptocurrency a fit for an economy like that of India and only when that will happen, cryptocurrencies will become an efficient and crucial part of the Indian financial system in the years of growth and development that is yet to come.