Cryptocurrency

Cryptocurrency, as we all know is one of the most relevant topic in today’s world. The debate over whether cryptocurrency can be accepted by a country as a substitute for fiat money, or be simply accepted as a form of asset is the center idea of this topic. Similarly whether a developing country like India will benefit from cryptocurrency or not, is a major concern.

Before venturing further into the topic let us first understand what is this cryptocurrency and its functioning mechanism from a general perspective. Cryptocurrency is basically a collection of binary data designed to act as a medium of exchange where each transaction and individual coin ownership records are  recorded in a ledger automatically via blockchain technology. Basically cryptocurrencies are built on blockchain technology. It is a decentralized form of currency. This decentralization is the main factor behind the advantage of using a cryptocurrency. Any kind of peer to peer transfer becomes easier ,faster and cheaper because of the absence pf the third party. At the same time, any kind of payments ,within or outside(i.e. remittances or business investments) the country becomes very easy by cryptocurrency because of low transaction fees and also because of common form of currency used. And frauds are highly reduced because of the underlying blockchain system. Now all these advantages are possible because of the cryptocurrency is decentralized and with this comes the high volatility of the cryptocurrencies. This volatility is the main reason behind the unacceptance of the cryptocurrency. If a value of a currency/asset decreases or increases by about 10% everyday ,it is highly unlikely for it to be used either as a form of exchange or as an asset. To solve this , volatility has to be reduced and to do that cryptocurrencies are required to be centralized . Thus compromising the basic advantages of the decentralized cryptocurrency. This is the trade off ,the world is facing regarding cryptocurrencies.

  Now comes whether accepting the use of cryptocurrency is beneficial for India or not?

Before answering it, let’s talk about the potential of cryptocurrencies in economic development. As an asset class, cryptocurrencies offer a level global playing field to invest and grow wealth, irrespective of country of origin.

The innovation and trade potential is quite fascinating. As a regulated industry, blockchain-based companies can freely operate in India and showcase leadership to the world. Future innovations in the cryptocurrency/blockchain space can come from India and it can also open up a new avenue for job creation and economic growth. India’s Polygon (Matic network) is building a protocol and framework to connect the blockchain based networks and is considered a leading contender to solve the network issues faced by etherium. Other such firms will sprout out and given India’s massive talent base, we can produce spectacular results on global forum. Concerning global trade, India’s dependence on the dollar can eventually be reduced if global trade moves to a decentralized cryptocurrency. The country and its export-oriented companies can have better predictability for trade and payments.

The future of cryptocurrencies in India is rich with possibilities. It does hold the potential key to unlock the pandora’s box that’ll help India to reach greater heights.

But nothing comes with only benefits. So is the case here as well. With all the rich benefits that comes with cryptocurrencies , comes the other side of it too. Inspite of all the merits, majority of the countries are against its usage. The main reason being price volatility. For all cryptocurrencies like Bitcoin, dogecoin, etherium etc. the volatility issue still remains one of the major concerns. This is probably the biggest reason behind the non acceptance of the crypto in India too, in spite of its potential to help, developing the economy. The main reason behind the volatility is that cryptocurrencies are not backed by any material goods. Industrialists or even private individuals will not be inclined towards the usage of cryptocurrencies if their value tends to fluctuate . Even its usage as a form of exchange gets hampered for the same reason. The major advantage that traders get from its use i.e. easy and fast peer to peer funds transfer with a small transaction fees, cannot be capitalized. Especially for the small and mediocre entrepreneurs of our country,  hardly any transactions are made in it. Unless the merits of cryptocurrencies are properly utilized ,the economy cannot benefit from it.                                                                 

And also not to mention, the very hidden nature of its transactions makes it easy to be the focus of Illegal activities like money laundering, tax fraud etc. not to mention terror funding too. These are some major adverse reasons that keeps coming up keeping the cryptocurrencies from being accepted widely.

However a large Indian investor base (10 million) has adopted cryptocurrency through legal exchanges. They are evolving and have faced resistance from monetary authorities including RBI. This growing adoption has ensured a thoughtful but impactful approach from the government and the RBI recently. The Indian government is considering regulating the cryptocurrency space to protect and serve the interests of investors. RBI has announced plans to consider a Central Bank Digital Currency (CBDC) based on blockchain technology in India. If such a digital currency, can be successfully developed, keeping the volatility in check and decentralized at the same time ,thus preserving almost all the benefits of cryptocurrencies.

This has the potential to promote financial inclusion among 190 million unbanked Indians. It will be widely accepted because of the stability and a developing country like ours is bound to benefit from it. In a nutshell, if a few discrepancies are sorted out, cryptocurrency and development can go hand in hand in Indian context.