Catch The New Tech Wave

Context:  Cryptocurrency will lead the next phase of digital revolution. India must not miss the bus.

Positives of Cryptocurrency and blockchain:

• Economic rise:
  • Cryptocurrency related companies (like Bitcoin ) have a cumulative market value of $2.5 trillion this May.
  • During the pandemic, “crypto market ” grew by over 500%.
  • In the first quarter of 2021, blockchain start-ups worldwide received venture funding of $2.6 billion.
• Removes intermediaries and bring efficiency:
  • Intermediaries (including banks, credit card and payment gateways) draw almost 3% from the global trade output of over $100 trillion, as fees for their service.
  • Integrating blockchain could result in huge savings and could make every aspect of governance, judicial and electoral processes more efficient and transparent.
• Makes the internet space more redistributive and fairer:
  • Blockchain could enable internet consumers (served by Internet giants like Google and Facebook) to receive micropayments for any original data they share with the internet.

Fears of Cryptocurrency: Generally held by the governments.

• High volatility:
  • The pioneer currency Bitcoin, which traded at just $0.0008 in 2010, commanded a market price of just under $65,000 in April 2021, raising concerns for regulators and investors.
• Law enforcement and taxation challenges: Due to their use in illicit activities like money laundering and terror funding.
  • In 2018, Reserve Bank barred financial institutions from supporting Cryptocurrency transactions, which was later reversed by the Supreme Court in 2020.
  • Yet the Indian banks block these transactions and the government has circulated a Draft bill outlawing all Cryptocurrency.

Critique of government’s reluctance against Open Cryptocurrency:

• Reserve Bank has recently announced the launch of a private blockchain supported official digital currency – leading to centralisation of a decentralised ecosystem.
• Impact on indigenous startup ecosystem: Only 0.2% of the global funds have gone the Indian blockchain start-ups.

Way Forward:

• Regulation with freedom:
  • Regulation is needed to prevent problems, to ensure that cryptocurrencies are not misused, and to protect unsuspecting investors form excessive market volatility and possible scams.
  • But it also needs to be transparent, coherent and animated by vision of what it seeks to achieve.
  • Provisions have to be made to route the value extorted from new networks transparently into our financial system. Indian investors hold Rs 10,000 crores in cryptocurrencies.