Better to Still Tiptoe on Crypto

The Economic Times     11th July 2020     Save    

Context: India’s decision to prohibit crypto in all its forms lacks complete information about risk and benefits accrued from its use.

Arguments in favour of Cryptocurrency Use

  • More secure than traditional payments: as digital tokens can save India billions with regard to inbound remittances.
  • India would need to create its fiat-crypto in the event of a US-China conflict.
  • Act as Digital assets (security tokens): and can be traded on a cryptocurrency exchange.
  • Act as Promissory notes (utility tokens): to enable customers to redeem them for goods and services in the future. 
  • Alternative means of processing payments.

Arguments Against Cryptocurrency Use

  • High cost associated with processing small-value remittances transactions (the average migrant typically transfers $300 or less at a time), via crypto-based exchanges.
  • High compliance costs contribute to the higher transaction fees: analogous to charging Uber a hefty fee instead of a taxicab license.
  • Blockchain-based cryptocurrency systems are prone to fraud: and rely on traditional payment systems to interact with fiat currencies.
    • They avoid issues related to clearing risks and real-time payments.
  • Risks associated with digital tokens/ Cryptocurrency: limited, discoverable, stable and managed by a distributed network of users.

Conclusion: Fiat cryptocurrency/tokens could replace Cryptocurrency /digital token and can reinforce centralized government or corporate control in the sphere of virtual payments.