Crypto – Not at this time? Or never?

[ad_1]

If our grandparents had been asked just 15 years ago if they would be doing cashless transactions, we would have heard a loud “no”. If we had asked them to do transactions without seeing / touching the money or even without writing a check, they would have laughed at our idea of ​​financial transactions.

Yet digital payments are now a reality across India, including those of the economically weaker part of the population and those across the literacy spectrum. All thanks to the JAM trinity.

The rapidity of technological advances is both a pleasure and a concern for regulators around the world. To keep up with the good and bad side of emerging technologies, especially those that affect the fiscal and monetary side of the economy, regulators need to be on their toes; including rapid strengthening of the capacities and capacities of their institutions.

In this aspect, technological innovation must be balanced with consumer protection and the broader social good. The fear of those who broadly support the new ideas is that the authorities will ignore the emerging digital money, for the short term notion of “not wanting this to happen in my watch”!

Of course, all is not well and our stakeholders have real concerns about cryptos. Some of them include:

It is not regulated. Yes, we need to regulate it to ensure consumer protection and maintain the stability of the fiscal and monetary systems.

Protecting investors has been a top priority for our regulators. Crypto assets are currently considered high risk speculative assets. Investor education, anti-abuse guidelines and other safeguards are needed.

It is price volatility and the risk of investment erosion: there are currently more than 10,000 cryptocurrencies. Most crypto investors can barely name 4 to 5! Many of these cryptos have little or no tracking or trading volume and therefore distort public opinion. But if the investor knowingly invests in cryptos and loses money, the regulator or the government cannot be blamed.

Anonymous transfers of crypto assets can weaken anti-money laundering efforts, posing a potential national security concern. We have to use strict KYC standards. The use of blockchain can bring more transparency for financial transfers because all its transactions can be examined. India is part of the G20 Financial Action Task Force (FATF) and players in the crypto industry are expected to join the FATF coverage.

Too much publicity by crypto exchanges and other crypto players could mislead investors. But treating the category like alcohol or tobacco and banning their advertising may not stop their popularity! Because we always have a form of substitution advertising that prevails in other categories of prohibited products.

Tax avoidance: By treating crypto investments as a regulated asset class and allowing crypto investments only from domestic bank accounts and through regulated crypto exchanges, taxation is possible.

Most importantly, Crypto is ideologically based on the blend of the political philosophies of anarchism and capitalism; which would call into question the supremacy of the state and its functions. It could test the limits of regulatory sovereignty. This does not bode well for political systems globally. Despite all the governments that talk about accepting the free flow of new ideas and evolving technologies, the struggle to retain their influence and control of governance should occur, under the guise of fighting the invisible.

A more bearish view of cryptocurrencies should be kept in mind. In the event of catastrophic events like war or climate related calamities where electricity and internet connectivity fail, gold still has value as a medium of exchange. Bitcoin stored in a digital wallet will be useless in this scenario (without electricity or internet access).

The government’s position must be that of the 21st century, worthy of its role as a world leader while being consumer friendly. For a nation that thrives and holds the aspirations of half a billion young people in its bosom, India cannot afford to make a bad decision on political issues without making a wide range of contributions, not just d ‘a business point of view, but also from a deeper technological understanding point of view whether it can bring potential-social welfare.

Crypto: Ideology of its genesis

Anarchism theoretically promotes the notion of stateless societies and no hierarchy in the power structure. If there are no structures of power or governments, that does not mean that there is no governance. Anarchism promotes self-governance and the notion of non-aggression and demands that all individuals act as rational actors, where competing personal interests will maintain order.

Anarcho-capitalists support the idea of ​​a stateless society, but also promote the idea of ​​owning private property and support free markets. All the functions of the company will be performed by competing private companies and reinforced by voluntary contracts! Well, can’t that seem far-fetched and utopian ?!

The creator of Bitcoin, Satoshi Nakamoto, developed the first cryptocurrency, as criticism of the inefficiency of central banks and monetary authorities who degraded currencies and criticized banks for holding people’s money but lending indiscriminately with very little reservation. Bitcoin presented itself as a solution where the limited number of tokens that could be created would limit indiscriminate lending.

Blockchain technology resolved to move away from finance centralized by central banks, which controlled the production and issuance of currencies. It also addressed trust issues with transactions in a limited way, as the blockchain was an immutable record of transactions that had to be authenticated by all nodes in the system. Blockchains are, at the base, databases that have certain characteristics, the best known of which is the immutability of what is already recorded in the database. When digital assets are bought, sold or traded, information about that transfer – including the wallet from which the asset was transferred, the wallet to which it was transferred, and a timestamp of the transaction – is recorded in a new “block” which is added to the end of the inline “chain”; Cryptographic calculations are then performed by computers around the world, called “miners” or “validator pools”, to ensure that assets cannot be counterfeited or duplicated spent. Each transaction is visible online to the public. Since wallets are a string of numbers and letters, every transaction made by a wallet can be traced.

CBDC

Cryptocurrencies have brought about changes in the world of finance. Fear or concern that this could bring digital currencies into the private space has prompted many central banks to design their own digital versions of their currencies. The Bahamas have already deployed a central bank digital currency, while countries like China, Japan and Sweden are experimenting with their own official digital currency.

The Reserve Bank of India is working on the creation of a central bank digital currency (CBDC). It is expected to launch a pilot version sometime in 2023. CBDCs are uncharted waters and there are several questions that need to be answered for acceptance, including state overbreadth and confidentiality where it might have an impact. full view of all transactions, the role of banks in this scenario, and whether he really needs a decentralized monetary system. While the source of the money may be a valid data observation by governments in general, it could be a privacy issue in tracking where citizens are spending their income / wealth!

CBDCs conducting centralized finance operations are at odds with the idea of ​​blockchain which aims to promote decentralized finance!

The state will remain sovereign

The state will want to have its influence in society and especially in a socialist democracy like India. It will have to take care of its population, especially vulnerable segments. Thus, the narrative of what is good for the economy could be the prerogative of the state in its process of political formation.

However, the relationship between governments and cryptocurrencies doesn’t have to be so antagonistic. Trying to fend off new technologies, especially in the ever-changing digital age, could only push it underground. Worse still, in the dark underground!

Anything that we as a nation allows or does not allow must work better for our citizens in the long run. The opportunity is now to show how much transparency we can build, as we develop our digital finance policies, in this century dominated by the 4th industrial revolution.

—Srinath Sridharan is a business advisor and independent market commentator. Opinions expressed are personal

[ad_2]