Out of all the things governments like to keep a tight control on, money is one of the most important. Yet is this love for regulating our monetary exchanges getting in the way of true progress. As blockchain technology dawns upon the modern world, our central government passes mixed signals to the ever so progressing Indian public. Is the Government right to be skeptical of this newcoming, or is it scared of being dethroned from unchallenged control.
What are cryptocurrencies and why are they such a big deal?
Simply put cryptocurrencies are like a piece of code, that when run by a network of people, allows users to exchange monetary value with each other without ever touching their local currency. If one person wants to buy something from another, the best way to make the payment would be to use their local currency, which in our country would be the Rupee. The only reason we are able to use the Rupee so freely is because our government assures us of its value. Technically, we could use any object we all agree upon instead of rupees to exchange our goods. This could be anything from a random rock to a piece of gold. The only thing required is for everyone to agree upon the value of this object and trust each other. As explained earlier, this has only been possible with the help of a common government. But now with the advent of blockchain technology and crypto currency we no longer need a common government to trust each other. Therein lies the reason why the centre is in a frenzy to come up with new legislation for cryptocurrencies.
Current state of cryptocurrencies -
Cryptocurrencies currently are treated more as a financial asset than regular currency. This is due to long transaction periods and problems transferring cryptocurrency to local fiat currency. The issue of long transaction periods is being countered head on by forming new protocols to make crypto just as fast as using your credit card. In countries such as Venezuela, where hyperinflation has met and local currency holds almost no value, crypto currencies have become the saviour in the dark, enabling local businesses to survive economic strife while not having to depend on the government for help. Cryptocurrencies are also making a market for themselves through other blockchain technologies that integrate themselves into the crypto ecosystem. A great example of this is the ethereum smart contract and applications network.
The truth of cryptocurrencies -
Cryptocurrencies are a libertarian’s wet dream. They are the perfect replacement for fiat currency, enabling more financial freedom than has ever been witnessed in recent times. This inherent virtue of privacy also makes cryptocurrencies the go-tocurrency for bad actors to conduct their business with. Cryptocurrencies now have a bad reputation for being used in money laundering, tax avoidance, and drug trade. This is one of the core reasons governments stand wary of what could become if cryptocurrencies became the norm. Yet regular fiat currency still remains as the top passage for illicit business to be conducted in. This is mainly due to lower levels of liquidity and erratic changes in valuations.
The centre’s stance on cryptocurrencies -
As of now cryptocurrencies operate in a legal grey area. Legislation that regulates cryptocurrencies as a financial asset is yet to arrive. The government has shown past interest in quashing the realm of cryptocurrencies altogether. Some may argue that this will put the Indian public at a disadvantage, similar to the way we lagged behind developed countries in terms of internet adoption and technological innovations. This backlash has been heard by the government it seems, who has delayed the act of banning cryptocurrencies and floated the possibility of embracing it on its own terms. Current possibilities include the government creating its own digital currency based on blockchain technologies. Yet, crypto holders remain in a confused state regarding their investments. Due to the lack of regulatory framework bitcoins are taxed the way capital gains are taxed, causing them to take the form of investments rather than exchangeable currency. The bigger issues regarding cryptocurrencies lies with entrepreneurs dealing with cryptocurrency. Big markets for crypto exchange have been formed in India, such as WazirX and Polygon. These companies are usually startups making innovations in the field. Such innovations are at the forefront of making India a key player in technological advances in the modern world. India’s leading cryptocurrency exchanges, including WazirX, CoinDCX and CoinSwitch Kuber, have partnered with the Internet and Mobile Association of India (IAMAI) to set up an advisory board to implement a code of conduct for the industry. RBI published a circular in 2018 asking banks to cease operation involving crypto currencies. This circular has been knocked down by the supreme court, yet many banks continue to pull out of businesses involved in cryptocurrencies. The RBI recently reiterated the supreme court judgement to banks, yet the effect of this is yet to be seen.
Where do we go from here? -
Currently, the only option we have is to wait for a proper regulatory framework from our central government. Until then, cryptocurrencies proceed to operate under legal gray areas while banks and governments spend their time researching and deciding what is the best way forward with this new technological advancement.