Cryptocurrency a borderless form of transaction that was banned by the Reserve Bank of India in 2018 since it raised concerns on market integrity, consumer protection, and the possibility of money laundering. It was last year in March when the ban was lifted since Supreme Court felt it was violative of freedom of business and profession under Article 19(1)(g) of the Constitution of India. Cryptocurrencies witnessed a surge in India after people started looking for an alternate way to earn money amid job losses and pay cuts. The current size of verified virtual currency users in India is 1.7 million India as per IAMAI (Internet and Mobile Association of India). Despite the ban lifted on cryptocurrency the Indian Government is yet sceptical of this novel currency’s working and is apprehensive of the risks associated with it. However, the Government has confidence in blockchain technology due to its characteristic of data not being able to tamper easily.
In 2017, China that had banned virtual currencies has recently opened gates for bitcoin trading. This raises the question that since blockchain technology enables the existence of cryptocurrency, then why Indian Government is shy in giving a green signal to cryptocurrency.
How blockchain is involved in cryptocurrency?
A blockchain is a specific type of database with its only difference being information or data stored into groups also known as blocks. Every block in the chain can accommodate a certain capacity of information. It is a distributed ledger system of all information or data across a peer-to-peer network. Every time a piece of new information is added, a record of the same is added to every individual’s ledger. This technology allows organizations to store any records or transactions eliminating the need for intermediaries. Thus, blockchain technology allows virtual currencies to run without any central authority further eliminating the processing fees.
Now coming to cryptocurrencies, they are open-source software whose access to source code is available to everyone. It has an online ledger of transactions that is maintained by independent people known as miners who are rewarded in virtual currencies for first completing blocks of verified transactions that are added to the blockchain.
The reason government fears cryptocurrencies because:
- Since the currency is decentralized, there is no central bank or governing authority that issues the money or transactions. Illegal financial transactions are probable.
- There can be frauds involved in the process of mining causing investors to get fooled.
- The open-source nature of virtual currencies can be altered by anyone.
- India lacks robust laws of cyberattacks and since the transactions in crypto are viewable by anyone, hackers have easy access to the system.
How is India reacting to it?
Indian Government is not completely against cryptocurrency but wants to ban the use of all private cryptocurrencies in India. Instead, the RBI has decided to come up with the central bank’s digital currency. Such official digital currencies are being implemented by central banks of countries such as Canada, the USA, Singapore, Tunisia, Senegal, and China.
India’s official digital currency
Unlike private cryptocurrencies, the digital currency that will be issued by the central banks of India will hold the same value as fiat currencies issued by a country’s central bank. Here, the digital money will be controlled and will remain in the custody of the licensed banks. The digital currency will be backed by RBI the trading will be considered legitimate.
Digital payments for transactions have seen a spike in the pandemic that is ushering the growth of the fintech sector in India. After India’s digital currency is constituted, it will pave the path for fintech start-ups operating in the blockchain space to enter the cryptocurrency industry. Though blockchain and cryptocurrency differ from fintech but altogether the three will create a new technological ecosystem to deliver new kinds of financial services.