While Regulatory clearance to cryptocurrencies can open pandora’s box, The underlying blockchain technology holds panacea for various areas of governance and economy.
Cryptocurrency is a digital currency created and stored using Blockchain technology. Some of such currencies that have been part of news are Bitcoin, Ethereum, digicoin, litecoin etc. Some such currencies have been legalised in various countries where some of them have even gone as far as to make them legal tenders. e.g. Marshall Islands (SOV) and Venezuela (petro).
Usually, Cryptocurrency (coins) can be obtained through 3 methods:
- Digital Mining using special software and high speed computer.
- Exchanging coins in return from miners using legal tender currencies.
- Selling services/goods in return of coins.
Why Cryptocurrencies are dangerous?
Anonymity in records
This may lead to tax evasion and illegal activities like narcotic drug selling, weapon trading etc. as it is pretty hard to track down the users.
India doesn’t have 100% digital and finance literacy. This gives rise to middlemen, who can create some ponzi schemes to trade bitcoin on behalf of people leading to small and big scams.
Also Investing in cryptocurrencies can lead to erosion of hard earned money as cryptocurrencies don’t have any intrinsic value as of now.
Not only cryptocurrency mania is leading to rise in costs of computers and mining accessories such as Graphics cards, but also leading to shortage in their availability. These rising costs are leading to problems in other industries where graphics cards are required such as graphic designing etc.
Also, mining bitcoins is leading to electricity wastage. According to an estimate, 20 megatons of CO2 is produced (including coal emissions in producing electricity) mining one 1 bitcoin, which is equivalent to 1 million transatlantic flights. Obviously, this is an estimation, but if only 1% of it is true, even then this creates a serious wastage problem.
Future is not good
It is being agreed that future lies in quantum computing (Google recently demonstrated quantum supremacy). With the emergence of quantum computers, these currencies can be mined in the matter of seconds, thus making their values obsolete.
On a contrary, the underlying technology, Blockchain has an immense potential of applications in Indian administration and Economy. Blockchain is a technology where storage of data is decentralised.
Why is Blockchain better Technology for economic record keeping?
- Faster than NEFT/RTGS/IMPS transaction mechanisms.
- Secure because loss of hardware at one site doesn’t result in data loss.
- Economic as cost of implementing is less than current transaction mechanisms
- As this is blockchain digital, Promotes less cash economy owing to less costs to banks and businesses and thus customers.
Blockchain can also have great application in Governance and Administration in systems including database managements. For instance:
- Aadhar card records
- Vehicle and license records
- People Distribution Schemes systems can be benefitted making scheme distribution more efficient.
These implementations will not enhance administration but also help in enhancing data security as well.
Cryptocurrency has been favourite discussion topic for so long and so many people are still actively participating in a lot of cryptocurrency trading activities. But legalising cryptocurrency as a legal tender doesn’t seem to be practical option in any scenario. Because of these reasons, both RBI and finance ministry of India are also cautious about cryptocurrencies but at the same time appreciative of Blockchain technology due to its better speed, security and implementation costs.