THE CRYPTOCURRENCY CONUNDRUM: EXPLORING THE IMPACT OF INDIA’S PROPOSED BAN OF CRYPTOCURRENCY
WHAT IS CRYPTOCURRENCY?
Crypto currency means data encryption which ensures security of transactions. It is a virtual or digital form of currency having no physical counterpart. This is a decentralised system and is regulated by its own users. The core concept on which crypto currency working is based is Privatisation. It has myriad of used but the most common use of crypto currency is for speculative investment.
Users buy it in the hope that its value will go up and then they can resale it or else they might be used as an alternative to traditional currencies. An inscription technique known as cryptography ensures its security. It is an irreversible trend and a demand of the next generation. The most fascinating feature of crypto currency is that you can combine any two or more cryptocurriences together and introduce a new one with advanced features.
There are more than 4000 crypto currency since it is an open source and anyone can create it. The most popular cryptocurrecies available are Bitcoin, Ethereum, Ripple, Litecoin etc.
Bitcoin is the first traded cryptocurrency and has been in circulation since 2009. It is the most popular crypto currency and Satoshi Nakamoto is said to be the creator of Bitcoin. It is said to be secured from the effects of currency debasement and inflation. Later on, Altcoins and shitcoins were introduced as the modified and improved version of Bitcoin.
HOW DO THEY WORK?
Buying crypto currency is not a cumbersome process. First, you need to create an account on any exchange website. You also need to ensure that you have a ‘wallet’ which is an online app that can hold your currency. After this you can transfer real money to purchase the cryptocurries of your choice. You can also withdraw few of the popular digital currencies from ATMs.
Blockchain enables the existence of cryptocurrencies and operates across vast network of computers. It’s not limited to crypto currency but has many users. Initially it was built to create fungible assets like Bit coin but later it also started supporting the Non Fungible Transactions (NFTs). These NFTs were introduced in 2007 and are separated from one another by a unique code which also helps in tracking. Once NFTs are purchased, you get the right to transfer the token. The token is a symbol that your digital file is original.
Various transactions can take place using this technology such as bonds, stocks and other financial assets. Mining is the process by which new crypto currency enters into circulation and block chain ledger is maintained.
These are secure payments which uses virtual tokens represented by ledger entries internal to the system. Representation of a particular asset or a utility on a block chain is known as a Crypto Token.
ARE THEY LEGAL?
The question of their legality differs from country to country. Every country has its own set of rules and regulations related to crypto currency. The popular advance countries where cryptocurrencies are regulated are USA, Singapore, United Kingdom, Switzerland, France, Canada and Indonesia while countries which have banned their use are China, Bangladesh and Algeria. The European Union and Finland has rules of crypto as a supply of services and that is exempt from the VAT (value added tax) in all member states, Finland treats Bit coin as a commodity and not as a currency. Germany restricts the use of crypto currency but is invested in the development of Block chain solutions. Few countries like Belarus has also made crypto activities completely tax free. Belgium has recently permitted the crypto transactions.
Crypto currency are still not legal tender in India while exchanges are legal. In 2018, the RBI banned all the transactions related to cryptocurrencies. It was basically a ‘ring fencing’ and not a direct ban. Top Indian officials have called this whole system a “Ponzi Scheme”. A special government panel was set in 2019 which recommended jail up to 10 years on people who indulge in any activity related to cryptocurrencies.
In March 2020, the Supreme Court of India passed a landmark judgment setting aside the ban by the Reserve Bank of India on crypto currency trading and asked the government to draft proper laws on the matter. There are talks among the regulatory bodies to regulate the crypto market. Their aim is to make framework which make crypto currency in India legal. Now the RBI is working towards launching its own digital currency and adopting a more balanced approached along with KYC and provisions against money laundering. The proposed bill has permitted the use of technology for experiments related to research or teaching of cryptocurrencies. If the draft bill is passed by the parliament then India will become the first major economy in the world to make holding crypto currency assets illegal. Government wants that fintech companies should have a window since they depend on block chain for their majority of transactions. This is mainly because increased transactions from rupees to crypto will make recovering tax difficult for the government authorities and for that they will need to recognise the crypto as a form of currency apart from INR.
Indian Government has been laggard for this since long and ignorant of the benefits of this system. One of the biggest reason behind this is the fact that frequent use of crypto currency will minimize the government interference ending up creating Laissez Faire. If they continue with these adamant and regressive methods then India would never be able to come at par with developed nations. Need of the hour is to embrace the current give technology and understand its potential in delivering best results to all.
WazirX is India’s biggest Crypto exchange platform.
WHAT STEPS HAS THE GOVERNMENT TAKEN TO ENSURE A FREE AND FAIR SYSTEM OF CRYPTOCURRENCIES?
The main aim should be to protect the integrity and independence of the crypto system. Setting up of separate regulatory body can help since giving complete freedom to individual players can be detrimental for the system. Some interference on the part of Government is also imperative as it brings has a whole new dynamics which needs to be monitored carefully under expert supervision. Cybercrime System should be installed by associating with analytics firms and international law enforcing agencies. However these regulatory authorities should not be given the control of daily functioning of transactions or impose unreasonable restrictions. It should only focus on monitoring the illegal use of crypto. The feature of minimum state interference should be fulfilled and recognised by all stakeholders. India can also adopt features from crypto currency models of various countries like the Payment Service Act (PSA) of Japan.
HOW DO CRYPTOCURRENCY AFFECT THE COMMON MAN?
Crypto currency is one of the most technical currency which is created/ used by big companies and individuals. Anyone investing in this should be equipped with proper knowledge of its working and the current trends of the market. The chances of activities like Scams and Frauds is high. For Eg: The renowned business man Ankit Bhardwaj fled the country with 2000 crores of rupees. He had promised monthly returns on the purchased bit coins but failed to do so as a result, interest of common people was hampered. It is a sunrise industry and people who have the stomach to digest sudden losses should step it. Since it is not a legal tender in India people can’t claim their transactions which makes it even more difficult. They have no place to go in case of any type of miss happening. Moreover due to the ambiguity and delay in drafting of crypto currency policies by the Indian Government puts a common man into dilemma of whether to invest or not as there is no remedy in case of a scam and the person have to deal on his/ her own. Thus dealing in these virtual assets is a very skilful job and people who are confident enough to be let in.
HOW CAN YOU SECURE YOURSELF WHILE MAKING THE TRANSACTION?
You can always keep the following points in mind while dealing with cryptocurrencies to ensure a smooth and safe transaction:
The company which is involved in the deal should be owned by a well-known owner as they are less risky. A lot of cases have been reported of people committing frauds and it is near to impossible to trace them.
From the beginning decide whether you want to own stake in the company or just tokens. Decisions of this type should be taken in the beginning without any delay.
It is very importance to check the currency in which you are investing. Question regarding whether the currency is developed or is still looking for funds to raise itself should be clear.
Whether you are the only investor in the company or are there any other investors. If there are more investors then it is a positive sign and makes it less risky.
DEMERITS OF USING CRYPTOCURRENCY
Transactions are irreversible in this system. Once you’ve said paid, there is no going back.
It is really volatile and the values keep on fluctuating as it works on the laws of demand and supply. In a month, the value can jump from rupees 4 lakh to 14 lakh.
It is a myth that cryptocurrency are highly secure rather they are always vulnerable to the threat of hacking and frauds. It is always difficult for a nascent investor to discern between genuine and fake innovator.
This system possess the risk of double spending where the owner illicitly spends the same bitcoin twice.
Its private nature makes it well suited for conducting illegal business practices such as tax invasion.
The fact that no third party is involved increases the chances of theft during the transfer. Adding to this, is the problem of no refund policy.
Also, there are environmental concerns attached to this system as mentioned by various scholars. It can drive a massive increase in fossil fuels, especially coal.
MERITS OF USING CRYPTOCURRENCY
The absence of third party makes micro transactions more easy and feasible. No prior approval or transfer fees is required from any institution.
Whole system is user friendly and private. Transactions don’t take place until and unless the user signs in and permits it. This system is known as “signing with a private key”.
There are no technical restrictions in transferring the amount and it allows 24*7 payment service.
There is Peer-to-Peer Focus and users are free to transact with anyone without any approval from external authority.
All the extra charges and banking fees is eliminated with no account maintenance or minimum balance fees.
Since all transactions take place online so users are saved from the problem of travelling to banks or stores.
This system is free from all external manipulation and control.
To sum up crypto currency is just a piece of computer code or encrypted message. Crypto market is thriving everywhere and people see it as a currency of future offering lucrative opportunities. It has the potential of lowering transaction costs by streamlining online process and the absence of government control makes it even easier. Whether it is crypto currency or NFTs, experts see them as future of art. Super powers and big tech giants have been investing and trusting this system for processing transactions since long. Just like all other assets this is also a risky business either giving high returns or leaving you at zero. Governments of all other developed countries have actively participated in policy framing regarding this and now India also needs to lay a proper policy framework for crypto currency which encourages the youth to participate and take it to a next level since the current policies are very difficult to comprehend. They can access the international capital by availing the ICO (Initial Coin Offerings). Proper Awareness should be spread and children should inculcate this knowledge to decode the Block chain technology and utilise it at the fullest. Apropos to any other technology it also has both pros and cons but if used carefully it can give high returns. India should conquer its fear of using technology and Crypto must be recognized and given the status of a normal currency.