Friday, January 22, 2021

Crypto Currency a threat to Economy

By Satish Singh

On the 2nd day of New Year 2021, the price of 1 bitcoin rose by 11 percent to reach the level of about 24 lakh rupees. In the past year, 2020, its price has increased by more than 300 percent. In just December 2020, bitcoin gave investors a return of 50.37 percent. According to an estimate, the price of 1 bitcoin can reach one crore rupees by the year 2030. As of June 2020, there were around 20 million users in the world, while Bitcoin has more than 5 million users in India. The number of investors below 30 years of age who invest in crypto currency is more than 70 percent in India.

The crypto currency, bitcoin was discovered in 2008, while it was officially launched in 2009. Some say that it was invented by Satoshi Nakamoto, but most people consider it imaginary. The smallest currency of bitcoin is Satoshi. There is a bitcoin of 100 million Satoshi. There are many cryptocurrencies including Bitcoin in the market, e.g., Ethereum, Ripple, Cardano etc. According to a February 2020 report, 5,000 cryptocurrencies are in circulation worldwide, with a market capitalization of $ 119.46 billion and bitcoin remains the world’s largest valuable crypto currency with a market capitalization of about $ 350 billion.

Bitcoin is a virtual currency. You can neither see it nor touch it. It is stored electronically. The business of bitcoin in India was banned by the Reserve Bank of India in the year 2018, which was later removed by the Supreme Court. However, other crypto currencies are still banned in India. Last year, media was quoted as saying that the bill to curb cryptocurrency will be introduced in Parliament in the year 2019, but it has not yet been tabled in Parliament.

Crypto currency is based on blockchain technology. It uses encryption techniques. Under this, the entire account of currency transactions is maintained, due to which it is almost impossible to hack. Because of this, the possibility of fraud in its use is low. Crypto currency is traded through a digital wallet. Its price remains the same all over the world at one time. Its value decreases or increases according to its trading in the world. No country, bank or regulator has any control over crypto currency. There is no time limit for its business. This can be done in the morning or any time of night. The price of a share in the stock market is determined by the financial situation of that company, but there is no basis for deciding the price of crypto currency.

Like rupees, crypto currency has nothing to do with inflation. It is also free from market fluctuations. Because of its illegal transaction, no one can be punished in a dispute related to it. However, it is not linked to any bank or financial institution. Therefore, it also has no regulator.

Last year, the Inter-Ministerial Committee on Crypto Currency chaired by the then Finance Secretary Subhash Garg had recommended banning crypto currency. Also, this committee recommended a fine of up to Rs 25 crore or 10 years imprisonment or both for engaging in any activity related to crypto currency.

After the crypto currency is fully in circulation, there will be a complete change in the economy of the country and the world, but it is not easy to imagine what it will look like. It is believed that banks will cease to exist after the crypto currency becomes a legitimate currency. Many standards of the economic sector will also change. In such a situation, the question arises that people who are unaware of the crypto currency today, where they will keep their money, where will they take the loan when needed, who will settle the dispute regarding crypto currency etc.  Therefore, investing in crypto currency is very risky. Sometimes its price falls by 40 to 50 percent in a few hours.

A few months back, the man who opened the country’s first bitcoin ATM was arrested in Bangalore. Through this ATM, traders wanted to trade in crypto currency by depositing money in their crypto wallet. They could also withdraw money from the ATM if needed. There was no need to use a credit or debit card for this. Initially the deposit and withdrawal limit from this ATM was kept at Rs 1000 and in future it was planned to increase the maximum withdrawal limit from Rs 1.5 lakh to Rs 2.0 lakh.

In India, unocoin exchange is currently offering the facility to trade in 30 cryptocurrencies. Due to the restrictions imposed by the Reserve Bank of India, this exchange was constantly looking for new options to increase crypto trading. In this connection, a new option in the form of crypto ATMs emerged but didn’t run. The increase in the crypto currency business indicates that its traders are also not in favour of banning it. Today these facilities are available on almost all major exchanges.

Some other exchanges are providing facilities like peer-to-peer platform to the traders or it is transacted through one account to another via the Internet. For this, server is not required. It can also be converted into another currency.

Businessmen in India are trading crypto currency without any regulator. Some businessmen want that it should be well regulated instead of banning this business and a clear law should be made in this regard, as the future of crypto currency in India is yet to be determined. The Reserve Bank says that crypto currency has no value of its own and there is a lot of potential for illegal trading. The Reserve Bank also said that it is not possible to estimate their price fluctuations. According to the Reserve Bank, security challenges such as hacking, password theft and malware attacks are also present with electronic wallets designed to save crypto currency.

Forbes last year released a list of the rich holding the crypto currency. In this list, some people had crores of billions of dollars’ worth of cryptocurrencies by value. According to this list, Ripple co-founder Chris Larson was first in connection with collection of crypto currency, while Joseph Lubin was in second place, Chang peng Chao in third place, Cameron and Tyler Winkel was in fourth place and Matthew Mellon in fifth.

Considering the fluctuations in crypto currency transactions, legal complexities and exacerbation of economic difficulties, it seems that it may take a long time to replace the existing currency. Since it is not made into a mint, its transaction is not as legal as other currencies. The transaction of crypto currency is done publicly, but it is difficult to identify the user due to keeping the user’s identity secret. Crypto currency is in the primary stage of experimentation. Even though Bitcoin is considered the latest version of the virtual currency era, it is several steps ahead of existing digital systems.

India has a long way to go to becoming a fully digital country. Perhaps for these reasons, the person who opened the bitcoin ATM was hurriedly arrested. Here, KAISHA has jointly started the crypto bank “Uni Cash” with the Multistate Cooperative Society in January 2020, which allows the user to transact in crypto currency. Uni Cash plans to open a total of 14 branches in the month of January. Therefore, it would be right to say that the popularity of crypto currency in India is not going to decrease.

Since the Supreme Court has lifted the ban on the business of bitcoin, its business in India has been unabated, as it is very popular in India. However, other crypto currencies in India are not traded at large level. It is clear from the study that the risks related to crypto currency cannot be ruled out completely, as India is still not able to deal with the risks associated with it. Therefore, the government should issue effective guidelines in this regard at the earliest.

(Author is Chief Manager at State Bank of India, Mumbai and editor of “Aarthik Darpan” an in-house journal of SBI.  Singh is also a freelance writer.  The views expressed are personal opinion of the author. He can be reached at satish5249@gmail.com and singhsatish@sbi.co.in.)

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