Crypto Currency in India

Crypto Currency is a digital asset that works as a medium of exchange. It uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets. It is designed to be secure and, in many cases, anonymous. It is associated with the internet and uses cryptography, the process of converting legible information into an almost uncrackable code, to track purchases and transfers.

Its genesis stems from the discipline of mathematical theory and computer science to become a mode of online money exchange. It uses cryptography, networking, open-source software and block chain technology

These are virtual currencies which use decentralized control. This makes them different from centralized electronic money and the central banking system.

The  first virtual currency system,  Bitcoin was created in 2009 “ Satoshi Nakamoto”. However it is not known whether "Satoshi Nakamoto" is real or a pseudonym, or whether it represents one person or a group. Thereafter a number of crypto currencies have been created across the world. The rationale was to shift power and control from institutions to individuals. According to Andresen, a software developer and entrepreneur based in Amherst, Mass, "Bitcoin is designed to bring us back to a decentralized currency of the people."

The number of crypto currencies available over the internet  in April 2018 was over 1565. By market capitalization, during April  2018,  Bitcoin  had  the largest blockchain network, followed by Ethereum, Ripple, Bitcoin Cash, Litecoin, and EOS.

Do we need crypto currency?

The concept of crypto currency is based on the fact that it shifts money control from the state to the individual. This places a lot of responsibility in the hands of the individual so as to use it judiciously without compromising the good of the society at large. It is a well known fact that there may be many vested interests that would only be concerned about amassing wealth at the expense of the gullible folks.

An illustration to the above point was the incident in the month of April when the Delhi cops busted a crypto currency minting unit at Dehradun. The gang had cheated people to the tune of more than a hundred crores and had then vanished with the loot.

In this regard, the RBI (the central banking agency of the country), has given the lenders a period of three months to sever ties with crypto currency traders and exchanges. It has barred regulated lenders from facilitating crypto currency traders.

In spite of this, trading volumes have risen. The experts have offered the explanation  of this phenomena as follows- procuring it now  would enable investors to convert rupees into crypto currency, which could  be later swapped for other coins via private trading platforms when the rules stipulated by the RBI get enforced. It is astonishing that many investors are still hoping that government would frame suitable policies to regulate it rather than ban it outright thereby moderating the stand taken by the RBI.

Our economy as envisaged in our constitution is a ‘socialist economy’ which aims at an equitable distribution of resources. Legalizing crypto currency would mean going against the principles of the constitution. Banning it outright will also not serve the purpose. Hence there has to be a via media which regulates its use.

Notable in this regard is the stand taken by the US Government which has legalized the use of crypto currency with the condition that –

The U.S. Congress may have the power to prohibit VCs under its power to “regulate Commerce with foreign Nations, and among the several States” and under its exclusive constitutional power “to coin Money” and “regulate the Value thereof”. In a decision taken in November 2014, the Court upheld the power of regulators to prosecute a defendant who “designed, created and minted coins called ‘Liberty Dollars,’ coins ‘in resemblance or in similitude’ (or made to look like) of U.S. coins.”

According to Gareth Murphy, a senior central banking officer, US, “widespread use (of crypto currency) would also make it more difficult for statistical agencies to gather data on economic activity, which are used by governments to steer the economy”. He cautioned that virtual currencies pose a new challenge to central banks’ control over the important functions of monetary and exchange rate policy.

Hence we expect some farsighted decisions from the panel that has on its board members from the RBI, the finance ministry and market regulator SEBI.

Ms Suchitra Srivastava
Associate Professor
Department of Management Studies