A government official stated that “Cryptocurrency is a ‘Ponzi- scheme’ and should be banned to protect the interest of investors.” The news has been flooded with controversies upon should private cryptocurrency be allowed in India or not. So why is this ban on cryptocurrency being such a huge issue?
A cryptocurrency is a medium of exchange, such as the US dollar, but is digital and uses encryption techniques to control the creation of monetary units and to verify the transfer of funds. There are different forms of cryptocurrency like Bitcoin, Ethereum, Ripple, Litecoin, Monero and many more. Digital scarcity is a fundamental characteristic of cryptocurrency, otherwise, the data representing the currency could be copied an unlimited number of times and the unlimited number of copies would make the digital currency worthless. Cryptocurrencies have entered the mainstream conversation as digital currencies such as Bitcoin and Ethereum have skyrocketed in value, easily outpacing the gains of many other assets.
Cryptocurrencies use a technology commonly referred to as a “blockchain” to track ownership, create digital scarcity, and prevent double-spending. Cryptocurrency is not controlled by any central authority, the decentralized nature of the blockchain makes cryptocurrencies theoretically immune to the old ways of government control and interference. To think and decide about the ban of cryptocurrency we first need to weigh its positives and negatives.
One of the advantages of cryptocurrency transactions is that they are one-on-one affairs, taking place on a peer-to-peer networking structure that eliminates the middleman. This leads to greater clarity in establishing audit trails, less confusion over who should pay what to whom, and greater accountability, in that the two parties involved in a transaction each know who they are. It also helps in asset transfer in a more efficient way, the blockchain cryptocurrency ecosystem may also be used to facilitate specialist modes of transfer. Another one of the great advantages of cryptocurrency is confidentiality in the transaction, each transaction made is a unique exchange between two parties, the terms of which may be negotiated and agreed in each case. It guards the privacy of your financial history and protects you from the threat of account or identity theft which is greater under the traditional system, where your information may be exposed at any point in the transaction chain.
Another benefit is that the transaction charges are low, it is way less than any other traditional financial systems. Though largely unrecognized as legal tender on national levels at present, cryptocurrencies by their very nature, are not subject to exchange rates, interest rates, transaction charges, or other levies imposed by a specific country, hence making international trade easier. Finally, the strong encryption techniques employed throughout blockchain and cryptocurrency transaction processes are a safeguard against fraud and account tampering, and guarantors of consumer privacy.
The problem with the usage of cryptocurrency is that it involves risk, both technological risks, and financial risks. One of the greatest draws of many digital currencies is also a potential risk factor for the individual investor. Bitcoin has paved the way for other cryptocurrencies in that it is decentralized, meaning that it has no physical presence and is not backed by a central authority. Due to the decentralized status, another issue arises with particulars of transactions. In most other transactions, currency with a physical presence changes hands. In the case of electronic money, a trusted financial institution is involved in creating and settling deposits and debt claims. Neither of these concepts applies to cryptocurrency transactions. A growing number of businesses are taking advantage of digital currencies as a form of payment. In other financial areas, businesses sometimes are required to register and obtain licensure for particular jurisdictions and activities. Owing to the complex and evolving legal status of digital currencies, this area is significantly less clear for businesses operating in the crypto market, this can lead to fraud, money laundering, illegality. Cryptocurrencies can also provide criminal organizations with a new means to host other financial crimes. While, this may not directly impact most cryptocurrency investors who do not intend to use this new technology to commit such crimes it can impact some. Investors who find themselves in the unfortunate position of being a victim of financial crime do not likely have the same legal options as traditional victims of fraud.
Keeping all these points under consideration, cryptocurrency has immense potential yet consequent risks that in a country like ours can create a huge problem. The problem of not being able to track down transactions will give rise to more frauds which won’t be able to get caught and with a population of 1.37 billion people, this problem only gets multiplied. The number of accounts a person can hold for the cryptocurrency is not limited, one can open innumerable wallets as it doesn’t get accounted and is free of cost, this can easily be a way for tax evasion. The control of the central government is required to avoid such frauds as private cryptocurrencies being untrackable can be a problem. Thinking from an investor’s point of view, the value of these currencies fluctuates very drastically, though this cannot be the reason to validate the ban of cryptocurrency.
The best options are either to have a government-controlled cryptocurrency (as RBI was planning on having) or have measures to do away with the risks and control malpractices altogether that come with the use of cryptocurrency. Investors and startups do not want the banning of cryptocurrency. Banks, and non-banking financial companies having any link to firms and individuals dealing in cryptocurrency would have to spend heavy amounts to go outside the country if they were planning on entering this market. This makes them further apprehensive of such a law but government is constantly working towards it. It is not easy to say whether to allow private cryptocurrency transactions and trading within India or put a blanket ban on it, RBI doesn’t want to give legal status to it, yet hasn’t banned it completely. The government is trying to do everything to stop the usage of bitcoins and other cryptocurrencies but it is better to regulate cryptocurrency in India to be able to take advantage of the benefits of it as in the end it is just a trading and an investment asset.
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A free spirited individual in her second year, pursuing Bcom.(Hons) from Shri Ram College of Commerce, she is an extrovert who loves learning more and more from everything around her, fueling her motivation to do more to be a better person with every passing day. A classical dancer since the age of 4, a music lover and most importantly someone who is passionate about helping others and creating a positive impact on the society.