Cryptocurrency – Will internet of money die a silent death in India?
The DEA released a draft bill on 22nd July, 2019 proposing to ban any form of private cryptocurrencies. This bill shocked all people involved in trading cryptocurrencies, blockchain developers and many more. This wasn’t expected by the community even after repeated warning from RBI and other institutions. The community had a high hope that the committee formed will understand their perspective, amid recently concluded G20 Summit where all 37 members of G20 including India jointly agreed to regulate (NOT ban) the cryptocurrencies.
What is Blockchain/Distributed Ledger Technology?
Blockchain is another term for database where you can store records just like MySQL, NoSQL etc. The only difference, Blockchain is decentralized and can be maintained by anyone (unlike specific person/company) participating in the network.
What is Cryptocurrency and can it be really banned?
What is Cryptocurrency? We will talk here about the most popular cryptocurrency;
Bitcoin: Bitcoin is a new kind of money that is decentralized, censorship resistant and uses blockchain to maintain all records. Remember torrents, where there is no central server and each peers can share the file if they want and anyone on the network can download it. Bitcoin works in almost the same way and that’s what decentralized mean. When someone sends bitcoin, there are people running nodes on network who validate these transactions. These participants are called miners and they receive fees in form of a virtual currency called Bitcoin.
NOTE: There is no central authority like banks to verify the transaction.
Besides, fixed amount of Bitcoin is created when these miners solve a complex mathematical problem, and that’s how Bitcoin is created.
The miners pay for electricity to keep their nodes running and from there only, Bitcoin gets it’s value. The network is protected from any type of attacks by these miners. The best thing is anyone can be miner and run their own node. It doesn’t matter which country you are from. You just need three things to run a node: Electricity, Internet and Mining Equipment(s) [PCs, mining rigs or even Laptop].
So its Peer To Peer (P2P), how effective the ban will be?
As its evident there is no central authority, so imposing ban on Bitcoin is next to impossible. Its free, open source software that can be run by anyone which makes it impossible to take down Bitcoin network. For bringing it down, one have to bring down the entire Internet. China tried to ban it but failed. Study show that up to 60% of mining hash rates is from China.
A ban can NEVER be effective on P2P network. The most anyone can do is to induce fear among people. But as the price of Bitcoin keeps increasing, the fear among people will be short lived and they will be back again due to rising monetary value.
Bitcoin is used in money laundering, terrorism and all sort of illegal activities?
Before answering that let me tell you, Bitcoin can be traded just like stocks/forex. People trade bitcoin on exchanges. The price is determined by these people trading and it varies from exchange to exchange.
To answer the above: Unfortunately YES . The best bet is to regulate via these Centralized Exchanges. In India most of these exchanges, follow extensive KYC and AML and can share the transactions with authorities. Given the public nature of blockchain, these activities are easily traceable.
FACT: Cash still is most prevalent and untraceable form of money used in illegal activities.
Cryptocurrency has no use case. It isn’t used anywhere.
It’s a common misconception. Many companies are using it
- Microsoft: You can use Bitcoin to buy games
- Whole Foods Market (Amazon subsidiary): Accepts Bitcoin as payment
- Cash App: Founded by Twitter CEO Jack Dorsey
- Travelbybit.com: Purchase air tickets or book hotels with BTC, LTC or BNB
and this list goes on increasing exponentially daily
Is Bitcoin a Ponzi?
As per Investopedia: A Ponzi Scheme is a fraudulent investing scam promising high rates of return with little risk to investors.
Remember, Bitcoin never promises any return because its a software. The price keeps fluctuating due to speculation among traders just like other markets (though with more volatility). As everyone is in-charge of the network, any person who promises return is just duping you. So categorizing it as Ponzi Scheme is not correct. If it would have been Ponzi none of the above mentioned companies would be using it.
I like Blockchain but I don’t like cryptocurrencies!!
It’s a misinformation created by few media persons with half baked knowledge.
The simple answer is NO. The long answer is: As soon as the network is controlled by few entities/companies, it becomes a database. A database which is open, but can be manipulated by any of these entities as per their will. So Blockchain without cryptocurrency is like Internet without websites, a body without soul.
Recently Facebook announced to launch their cryptocurrency called Libra. But is it really a cryptocurrency? The answer is NO and the reason is simple that the nodes are controlled by Facebook and few other companies, making it centralized digital currency and not cryptocurrency.
Is there any way to regulate it? It might create a parallel economy.
Many countries including USA, Japan, South Korea, countries from all over Europe and many more have already started regulating (NOT banning) it. Remember the Winklevoss twins from The Social Media. They are the forefront faces in helping the government for regulating cryptocurrencies. They are running their own fully regulated licensed exchange: Gemini.
Earlier, all Indian exchanges have proposed ways to deal with all these problems that exist in cryptocurrencies. It seems it was not considered by the committee.
NO, It won’t create a parallel economy if it is treated as tradable asset.
I still don’t trust these cryptocurrencies and want them banned?
Bitcoin is an innovative form of money. Until it evolves, it should be treated as an asset instead of currency. Banning will lead to:
- Loss of jobs: Both traders and developers will lose jobs. Many people left their jobs to work in this area.
- Push India behind other countries in innovation: All developed countries are embracing it. Banning will push India behind in innovating this new technology.
- Loss of income from tax: Traders and exchanges pay huge amount in tax which will be lost.
- Increase illegal usage: People will find other untraceable ways to deal in cryptocurrencies which will increase its illegal usage. Whatever the usage, it will become 100% illegal and impossible to trace.
- Increase brain-drain: Many developers have already left India and raised millions of dollars for their projects and many will keep doing so if there is not a friendly regulation environment.
All cryptocurrency enthusiasts are eyeing on Prime Minister Narendra Modi to bring positive regulation as he has repeated many times about its potential. Banning will not work and is a short term solution. It will push India away from innovation and trying new things. We need to become leaders in this space and set an example for other countries.
Lastly, Bitcoin and cryptocurrencies are here to stay. It’s too big to be killed by anyone.
Lastly, do watch this TEDx
Disclaimer: This article is not an Investment advice. While money makes cryptocurrencies sexy, there is a lot of risk involved if you don’t understand the technology. First understand, then research and if you yourself are satisfied,then only put your money in this. No one becomes millionaire in a day. Avoid scammers. Stay safe and appreciate the technology.
My two cents to spread awareness about technology, privacy in AI, ML, Blockchain.