To manage all the resulting risks from the use of cryptocurrency in India, the Government should issue effective guidelines in this regard at the earliest
On the second day of 2021, the price of a single bitcoin rose by 11 per cent to reach the level of about 24 lakh rupees. In the past year, its price has increased by more than 300 per cent. In just December 2020, bitcoin gave investors a return of 50.37 per cent. According to an estimate, the price of one bitcoin can reach a crore rupees by the year 2030. As of June 2020, there were around 20 million users in the world, while Bitcoin has more than five million users in India. The number of investors below 30 years of age who invest in cryptocurrency is more than 70 per cent in India.
The cryptocurrency, bitcoin was invented 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 capitalisation of USD 119.46 billion and Bitcoin remains the world's largest valuable cryptocurrency with a market capitalisation of about USD 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 cryptocurrencies are still banned in India. Last year, the 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.
Cryptocurrency 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. Cryptocurrency 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 cryptocurrency. There is no time limit for its business. This can be done in the morning or at 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 the cryptocurrency.
Cryptocurrency 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 cryptocurrency. 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 cryptocurrency.
After cryptocurrency 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 cryptocurrency 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 cryptocurrency today, where they will keep their money, where will they take the loan when needed, who will settle the dispute regarding cryptocurrency etc. Therefore, investing in cryptocurrency is very risky. Sometimes its price falls by 40 to 50 per cent 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 cryptocurrency 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 1,000 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 cryptocurrency 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 a peer-to-peer platform to the traders or it is transacted through one account to another via the internet. For this, a server is not required. It can also be converted into another currency.
Businessmen in India are trading cryptocurrency 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 cryptocurrency in India is yet to be determined. The Reserve Bank says that cryptocurrency 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 its 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 cryptocurrency.
Considering the fluctuations in cryptocurrency 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 in a mint, its transaction is not as legal as other currencies. The transaction of cryptocurrency is done publicly, but it is difficult to identify the user due to keeping the user's identity secret. Cryptocurrency 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.
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 cryptocurrencies in India are not traded at a large level. It is clear from the study that the risks related to cryptocurrency 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.
The writer is the Chief Manager in the Department of Economic Research at the Corporate Centre of State Bank of India, Mumbai. Views expressed are personal