“Cryptocurrency is such a powerful concept that it can almost overturn governments”–Charles Lee, Creator of Litecoin
In this modern era, the process of exchange of currency is changing substantially, especially after the introduction of cryptocurrency to the world. Cryptocurrency is a digital currency which is handled through an encryption process known as cryptography. The concept of digital currency that everyone is currently using was once a concept that was read in books only. The first break-through for cryptocurrency was when bitcoin was created in 2009 however, it didn’t get much attention then, but in 2013, it donned a market valuation of more than $2 billion at its peak, however saw a 50 % drop soon afterwards. This sudden fluctuation questioned the future of cryptocurrency, specifically for bitcoin. And whether the cryptocurrencies will ever be considered equal to the value of rupee or dollar?
Although the criticism about cryptocurrencies didn’t stop, still new cryptocurrencies started to emerge like- Swiftcoin, Litecoin, Namecoin, Unocoin etc. There were many claims that the bitcoins were being used on the dark web for unlawful activities. Some economists believe that regulation of cryptocurrency would bring a new wave in the economic policy of a country. While some economists believe that if a country regulates cryptocurrency then, it would be a setback to the financial policy and would greatly affect the current medium of exchange that a country is following.
Advantages of cryptocurrency
- Cryptocurrencies make it easier to transfer funds from one party to another without the intervention of any other third party like a bank, the security of a transaction is thus, provided through some private or public keys.
- The fees charged by a bank during fund transfer is very high, but the process of fund transfer is done with minimal fees.
- The ownership of the cryptocurrency is with the owner only unlike the bank the digital money that an individual transfer or receive cannot be frozen by any bank or credit card company.
- When a credit card or any bank transaction is done, an individual has to submit the confidential information, however, in case of cryptocurrency the person has to mention only the amount that is to be transferred.
Criticism of cryptocurrency
- Cryptocurrency is only accessible to those people who have access to the internet. People who are illiterate and are not aware of the protocols or the mechanism of the cryptocurrency find it difficult to use.
- Cryptocurrency tends to rise and fall anytime i.e. there are a lot of fluctuations that happen while dealing with cryptocurrency thus the exchange rate can change considerably in moments, the amount a person pays or receive may change the very next day.
- The anonymous feature of cryptocurrency payments makes them a suitable victim for various online frauds or criminal activities, such as money laundering and tax evasion.
Status of cryptocurrency in India
In India, 2 PIL’s were filed in the supreme court, one was about the ban on the use of cryptocurrency in India and the second petition was to regulate cryptocurrency in India. Both these petitions are still pending in the apex court and till now no decision has been made regarding both the petitions. Then in 2017, the Government of India formed a committee which was to be headed by Subhash Chandra Garg who was the secretary of the department of Economic Affairs at that time and other members were the Deputy Governor of RBI, Chairman of SEBI, and Secretary, Ministry of Information and Technology. This committee was formed to deliberate and discuss the regulatory issues of the so-called ‘virtual currency’. The main objective of this committee was to suggest potential solutions to the government regarding the regulation of cryptocurrency in India.
After the formation of the committee and after various deliberations, RBI and the Ministry of Finance issued several press releases pertaining to the risk of cryptocurrency and to make the public cautious about the threat it may pose in the future. In the press release, they stated that virtual currency is just like another internet fraud and stated that it is not a currency. Although no legal regulations were enforced nor any ban was imposed on the use of digital currency.
In April 2018, RBI issued a notice in the public interest which clearly stated that the co-operative banks, commercial banks, small finance banks, NBFC’s and other payment providers must not deal with virtual currency and they should not provide any type of service to any entity that is dealing with cryptocurrency. The consequence of this issued notice was that the cryptocurrency exchanges, which relied on conventional banking networks to send and receive money to and from their customers, were unable to reach any banking services in India. This effectively hampered their business activities because turning cash into cryptocurrencies was an integral part of their services. Due to this, the exchange of cryptocurrency suffered huge losses and the number of transactions that were done decreased substantially. All the individuals who invested in cryptocurrency thinking that they would get benefit from this investment, they were forced to sell their digital assets as they didn’t want to lose access to banking services.
Due to heavy losses, IMAI (Internet and Mobile Association of India) filed a writ petition in the Supreme Court, challenging the notice issued by the RBI. In this case, the apex court questioned RBI regarding the reason for which the notice was issued to which RBI stated that digital currency would hamper the position of the current financial institutions in India.
However, the court stated that a proportionality test needs to be passed i.e. the reasons given must be proportionate and not ambiguous. Supreme court stated that the right to create something that does not contravene any existing policy is an unstated basic law. Consequently, citizens are entitled to establish a new cryptocurrencies and exchanges industrial sector along with all the fundamental right to operate, it said. The bench also said the central bank didn’t show that trading in those currencies was harmful to the organizations it controlled. The order given by RBI was thus quashed and was a welcoming decision for the industry of virtual currency.
The world is not ready to accept the upcoming mode of currency exchange i.e. ‘virtual currency’ today. India is not the only where the debate over cryptocurrency is ongoing, many other countries are also deliberating on the idea of regulation of cryptocurrency. As the conventional world is now transforming into a digital world, sooner or later the world has to accept this new form of currency. It would become a symbol of power for the countries that would regulate the use of cryptocurrency. Every concept has its critics but overcoming that criticism is what cryptocurrency would do in the near future. The exchange of cryptocurrency would be done all over the world but, it would be subject to certain rules and regulations as suited by every county’s framework.