In the era of digitalization, cryptocurrency has become the talk of the town. Recent innovations have made it feasible to transfer private digital currency without the intervention of an organization such as a bank. It is one of the emerging online currency of the modern era which uses encryption techniques to regulate the generation of currency units and verify the transfer of funds. Cryptocurrencies have no region, and there are some 2500+ cryptocurrencies globally. But does Crypto Currency have any future in India?
Cryptocurrencies are tradeable cryptographic tokens with Bitcoin as the most famous example. Bitcoin, developed by a pseudonymous creator, Satoshi Nakamoto in 2008, is a peer-to-peer digital currency based on blockchain technology. It can be used to transfer funds anywhere in the world at the click of a button and at costs far lower than that involved in the traditional financial system. It is the first digital decentralized currency, and its economic growth has encompassed to billions of dollars within a few years. But is there any Future of Crypto Currency in India?
What is the scope of cryptocurrency in India and why is it that Indian economy has started moving towards virtual currency? Is there any future of cryptocurrency in India? Here are some of the reasons.
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Need of Cryptocurrency
On 8th November 2016, the Reserve Bank of India stripped the nation of 86% of its currency when 500 and 1000 rupee notes were no longer considered as legal tender. This move taught 1.3 billion people that cash was unreliable. While the Government propagated digital transactions in the country aiming to create a cashless economy, the younger population turned towards Bitcoins. According to The Economic Times, in mid-2017, approximately 2500 Indians invested in Bitcoins daily. Cryptocurrency, due to its decentralized nature, offered them a safer haven free from political and economic reforms.
Unorganized banking industry
40% of Indians, living in both urban and rural area do not have a bank account. This is mainly because opening a bank account is a tedious task in the country. Several documents like address proof, proof of identification, etc., are required, and it is difficult for everyone to produce these documents. Consequently, they don’t have bank accounts. This hinders their financial decisions as they rely purely on cash. Cryptocurrency, on the other hand, do not need a bank account and helps you to trade internationally. And that is why people are resorting to it.
Promotion by companies
It has been found that in 2017, more than 500 merchants and as many as five big companies started accepted cryptocurrency as payments in India. The number has been growing and while Indians still prefer flat money for transactional purposes but the craze for Bitcoins is rapidly growing.
The Digital India initiative by the Central Government has indirectly supported the wave of cryptocurrency in the country. Digital India has helped build India’s digital infrastructure and promoted the adoption of cashless economy in the country. The government has also been working on formulating a framework for regulating virtual currency in the country. RBI’s Institute for Development and Research in Banking Technology (IDRBT) is trying to find out ways to leverage blockchain in Indian banking and financial sector.
However, recent developments suggest that the Government is not pleased with cryptocurrencies. In April 2018, the Reserve Bank of India banned all transactions involving the use of virtual currencies. According to an ET news report, the IT department has rolled out notices to around 500000 cryptocurrency investors. Also, Zebpay, India’s first and most trusted bitcoin, and cryptocurrency exchange shut its operations in India.
Why is it that the Government is restricting the growth in global crypto space? Will Crypto Currency have any future in India? Let us try and understand the reasons behind it.
Reasons for Hindrance of Cryptocurrency
Wide entrance, Narrow exit
While cryptocurrency has lowered the entry barrier and virtually everyone can enter into a trade using these virtual currencies, the gate to exit is very narrow. Cryptocurrency is inconvertible, and the technological constraints involved make your exit from trade very difficult. This is expected to create a worldwide crisis and massive collateral damage when people wish to opt out of it.
Intangible and illiquid
Virtual currencies are intangible, and they cannot be converted into liquid form. The inconvertibility of cryptocurrencies further multiplies the risk associated with them and considering the investor’s security; the Government is particularly wary of them.
Cryptocurrencies lack custody and control. There are no policies in place to protect investors and their assets. The decentralized nature of these currencies proves to be the biggest threat for traders.
Cryptocurrencies lack coordination and clarity on regulatory and financial aspects. The relatively new and untreated territory of these currencies has made it a new haven in the illegal market. Countries and jurisdictions around the world are now seeking to become favorite destinations for investors and projects in the crypto land grab.
Manipulation and extortion
Since the market is particularly new, investors are easy prey to cyber extortion, market manipulation, frauds, and other risks. It is believed that a small group of people drive the crypto market with their vast assets. They apply several manipulation tactics like dark pools to sway the investors.
According to a report, more than two million dollars were lost to crypto scams in the second quarter of 2018. Fake ICOs (a crypto version of IPOs) and twitter bots are the two most common scams. Also, there are Ponzi schemes among others that have been manipulating the investors.
While cryptocurrencies are the pioneers of the digital economy and help address several issues like intellectual property rights, company shares, etc. yet they possess a considerable amount of risk and open the doors to many financial crimes and possess the risk of economic instability. However, India acknowledges the benefits of blockchain and RBI has recently introduced token, a precursor to the digital currency, based on blockchain technology. Virtual currencies have a strong potential for further development; nevertheless, the development of global or at least a regional legislative base should stand prior.
More than seventy years ago, in 1947, India was born. Few Indians now alive know how uncertain India’s future looked in 1947. The most prominent question then being asked was ‘Will India Survive?’ Now, seventy-one years down the road, that fearful query has been replaced by a far more hopeful one, namely, ‘Will India Become a Superpower?’
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