Cryptocurrency is an innovative concept that works as a medium of exchange to buy goods and services online.The working of cryptocurrency uses cryptography. Cryptocurrency, in simple terms, is called digital currency. Why cryptocurrency? It avoids counterfeit.
Akhila Veeraganta; Ayushi Khandelwal, UPES, 22 August, 2020, 9:05 PM IST
Cryptocurrency is an innovative concept that works as a medium of exchange to buy goods and services online.The working of cryptocurrency uses cryptography. Cryptocurrency, in simple terms, is called digital currency. Why cryptocurrency? It avoids counterfeit. Cryptocurrency is like any other form of medium of exchange (money) but this is instead designed for the purpose of exchange of digital information. It ensures users make secure payments with the help of decentralized technology by ways of identifying theft, making it difficult to counterfeit currency. Now, what is counterfeit? A counterfeit is any fraudulent imitation of something. Here, since we’re talking about money, it is called counterfeit money, that is, when the imitation of the original currency is produced (which is usually done with legal sanction from governments) in order to simply deceive the recipients. For each cryptocurrency, Distributed Ledger Technology (DLT) is used to maintain the database of all transaction. This database is used publicly to store information about financial transaction made through cryptocurrencies. This database has complete list of transaction logs (in cryptocurrencies),which is known as Blockchain.
However, it is important to know that cryptocurrencies are immune to the government or its institutions. Simply said, it is not issued by any central authority, unlike how the current currency is issued only by RBI.
Technically, this list or records are known as blocks that are connected with the help of cryptography. India finally did win the battle against Reserve Bank of India (RBI) after two years and legalized Bitcoin after a series of bans and lifting of bans by the RBI.
The Reserve Bank of India banned financial institutions from providing their services to cryptobusinesses and eventually leading to a ban in cryptocurrency trade in India in April 2018. A circular was distributed regarding the same. The Supreme Court of India held this circular unconstitutional after passing a judgement and lifted the De Facto ban of April 2018.
Cryptocurrency searches started growing so rapidly in India. Also, it could be observed lately that people in the country wanted to invest in and trade in cryptocurrency. There is no doubt that cryptocurrencies can become new investment means for people. India has witnessed a rise in the use if bitcoin over past few years. The Government of India has been consideringto bring its own cryptocurrency so as to make it an alternative to Indian rupee. This way, any value (degradation) would not affect the economy as much and would make a huge impact on the economy with regards to diversity of funds.
Hereinafter, it shall be seen in detail how cryptocurrency works.Cryptocurrency uses blockchain technology. It stores all the data related to all the transactions done online in the form of a ledger, be it digital money kept in digital wallets or used in trading. This technology is an individual-to-individual technology, say, an institution, company, organization, whosoever, owns the governing of computing power and participates in the network. It is to be understood that this is a highly secure network. This applies to bitcoin or any other cryptocurrencies. This network consists of individual nodes / miners. Nodes are those people who process the transaction on the blockchain technology.
The bitcoin has a lot of history in its evolution. But since what bitcoin is understood, here’s the question. Will India accept cryptocurrency into the economy? India finally did win the battle against Reserve Bank of India (RBI) after two years and legalized Bitcoin after a series of bans and lifting of bans by the RBI.
In early India, there was a bartender system where goods were the medium of exchange giving it certain measurable values. Soon it transformed into currency which is printed by the Reserve Bank of India and regulated by the government and its institutions. What if there can exist a currency which is not issued by any central authority or is not regulated by the government? This thought occurred to Satoshi Nakamoto way back. He is the founder of Bitcoin, the very first decentralized cryptocurrency introduced in 2009.
From 2012 to 2020 there has been few ups and down in cryptocurrency in India.
- Cryptocurrency made its subtle beginning in 2012 when small scale bitcoin transactions had already started taking place across the country.
- In 2013, it started gaining popularity around country. In the same year, a shop known as kolonial in Bombay started accepting payments in Bitcoin for the very first time in India. Gradually, there was a rise in the use of bitcoin in India.
- In 2016, when demonetization took place in India more investment in cryptocurrency was seen.
- The crash in 2017 happened when the government held a warning against the use of the same. Dueto China’s warning against investing in cryptocurrencies, the crypto market was badly hit.The People’s Bank of China went against the investment in virtual currencies and alerted its people about its negative impact like money laundering, suspicion of market manipulation and so on. This condition improved by the end of the year due to certain reasons. Following this, Japan declared Bitcoin to be its legal currency in April 2017.The US Commodities Futures Trading Commission approved trade in cryptocurrencies.People gathered trust with regard to the use of the cryptocurrencies in other nations.
- In the year 2018 finance minister announced that the Indian government does not consider cryptocurrencies as a legal tender. A ban was imposed on use of it by RBI stating its risk and unregulated setup.
Due to the lack of regulatory setup it was said to deprive the investors of the safety from risks like
- Retail investors’ losses
- Can be dangerous to the economy of developing countries
- Misuse of technology may lead to funding of harmful or dangerous organizations indulging in terrorism, trafficking etc.
India eventually took a final decision on regulating market. Even after the regulation of cryptocurrencies is set in place, the permit to use in payments system still remains a doubt.
Now that cryptocurrency is legalized in India, it is believed that the introduction of cryptocurrencies in India will bring in more jobs. How exactly it would create more jobs? It’s simple. Man power is necessary to work with the blockchain technology. It takes persons to authorize and process each transaction that happens via an individual platform. Therefore, it would create a positive impact on the Crypto-ecosystem globally.
The Indian government is focused on bringing in a legal framework specifically for cryptocurrency. Keeping this in mind, the possible question that arises is what would the cryptocurrencies be treated as in India – securities, prepaid instruments or a deposit? Unfortunately, cryptocurrencies cannot be treated as a security. In India, a security is defined to include shares, debentures, stocks, bonds, scrips etc. Although, cryptocurrency is associated with speculation, maybe marketable, it still does not consist of what a security does. Similarly, cryptocurrencies cannot be treated as deposits too. The very issuance of a cryptocurrency creates a debt on the part of the issuer till when the cryptocurrency is transferred to the one purchasing it. Only to the extent of consideration of the issuance of a cryptocurrency, it may be treated as a debt. That makes it difficult for it to be considered as a deposit further after the purchaser buys, since deposits in India simply involved with repayment of money. As far as prepaid instruments, which is regulated by the Payments and Settlement Act, 2007 are taken into consideration, cryptocurrencies are said to be distinct from prepaid instruments. This is because unlike prepaid instruments, cryptocurrencies have an intrinsic value attached to them and are independent from the control of any central authorities and free from government regulation but with the former, it’s quite the opposite. The Indian laws that can be associated to cryptocurrency, including all of that governing the abovesaid, are still debatable.
Cryptocurrency has gained momentum after Supreme court revoked the recent ban, and there seems to be a bright future for the cryptocurrency market. This decision supports the trading of cryptocurrencies such as Bitcoin and Ethereum. However, full use of the cryptocurrency may take time, as an official announcement by the RBI is pending.
According to The New Indian Express, by looking at data with regard to the value of Bitcoin over the past year, it rose from Rs. 2.7 lakhs in March 2019 to 8.46 lakh in July 2019. However, in December 2019, it fell to Rs 4.69 lakhs. After the recent Supreme Court decision, the value of Bitcoin raised to Rs 6.74 lakhs in March 2020.