Don’t Bite It, Make It Legit

The Economic Times     13th March 2021     Save    

Context: Banning cryptos is not a solution for addressing its issue of duality of contradictory traits.

Arguments for banning cryptocurrencies

  • It reduces the power of the government: Because of its duality of contradictory traits: i.e. ‘privacy’ and ‘transparency’.
    • Liberal democracies sense their helplessness before this combination of finance and technology.
    • China prohibited cryptos after approving it.

Arguments against banning cryptocurrencies

  • Fixed supply: Never in history was there anything whose future supply is known with arithmetic precision. (about 18.6 million mined till date and will attain a max. of 21 million).
  • Seemingly incorruptible network: Tampering with the software or interrupting a bitcoin transaction would require half the number of anonymous persons — millions of them, spread across the world.
  • Cryptos are irresistible: Marquee institutions buy or back bitcoins, and an expanding cohort of converts publicizes the invincible technology, leading to price-spiral as demands overwhelm supply.
  • Banning crypto trades will not be effective: as
    • Traders will make use of countries where trading is legal: by tracking price movements in countries where trading is legal.
    • Investors may use their contacts abroad: Investors will bet on overseas exchanges or hold wallets abroad by remitting funds to relatives who would purchase bitcoins on their behalf.

Way forward: for various stakeholders to deal with cryptos

  • Government should legitimize cryptos: so as to tax gains from cryptos.
  • RBI should study the impact of cryptos: on money supply and velocity of money.
  • Investors should realize: Cryptos are not above the law even if they are outside the law and acknowledge the vulnerability of cryptos - it is possible to crawl into digital wallets to steal cryptos.