Cryptocurrency: Its Time Has Come

Cryptocurrency is the Guy Fawkes to sovereign legal tender. This 21^st century avatar is the disruptive spawn of the digital age, now using stage three of  internet efficiency and proliferation, dubbed Web3. It offers a global currency that goes by thousands of names. But none of them have underlying assets like national currencies. Neither is their value guaranteed. Its reckoning comes from an investment frenzy of speculation and the times it lands from cyberspace to transact with conventional currency.

This virtual Guy Fawkes used the pseudonym Satoshi Nakamoto for its alleged inventor. It does not want to blow up the King and the House of Lords. It simply wants to operate as it is, anonymously, without regulation, across the digital universe. A self-driving train without a central bank at its apex.

Ten odd years since Bitcoin, the best known of the cryptocurrencies started in 2009, Indians own 60% of the world’s cryptocurrencies via 15 million people, trading, investing, or creating blocks for the chain in a process named mining.

Large cryptocurrency exchanges such as WazirX, CoinDCX, Giottus, Zebpay and Bitbns here are partnered by Punjab National Bank, IDFC First Bank, Federal Bank, Deutsche Bank, Bank of India, Bank of Maharashtra, Indian Bank. This lot clocked trading volumes of $ 977.68 million on the spot market on the 24^th of November 2021.The biggest banks such as SBI, HDFC and ICICI  Bank have stayed away so far.

Foreign firms such as Tiger Global, Sequioa Capital, b Capital, Andreessen Horowitz, Paradigm, Ribbit Capital, pumped in $ 500 million  into India’s cryptocurrency and blockchain technology in 2021. This has taken the Indian valuation to $ 1.9 billion, up from $ 500 million six months ago.

It is not all speculation. Tata Steel has executed a Standard Chartered Bank/Contour blockchain-enabled, paperless export order, to a metals major in Bangladesh. This follows on from an HSBC platform enabled trade finance transaction with a UAE based company in April 2021. These fraud-proof, confidential, and safe blockchain transactions, could be completed in hours instead of days, bypassing a heap of paperwork. Blockchain technology offers a collective of users that perform their own gatekeeping and custodial functions.

But all is not well in paradise. Valuations of the some 6,000 odd cryptocurrencies in operation are volatile, and do not operate with safety nets of any kind. The big ones are Bitcoin, Ethereum, Tether, Solana, Cardano, Polkadot, Avalanche. A New York based website CoinDesk provides news on cryptocurrencies. Bitcoin valuation at its highest ever was $69,000 earlier this November. It was at $55, 460.96 on 24^th November 2021.

 There is an effort to market cryptocurrencies as a get-rich-quick scheme for gullible investors. This could come back to bite the government in the absence of regulation.

However, news of coming Indian government legislation in the winter session of parliament also panicked  up to a 20% decline in value.A similar knee-jerk reaction followed on from remarks made by the RBI governor in April 2021.

It is a computer-generated phenomenon, using a  book-building process it calls ‘mining’. It is a peer-to-peer payment system and operates internationally with no exchange rate arbitrage. Bitcoin is used to buy goods and services at networked online stores, turns into cash at designated Bitcoin ATMs, and can even transact at some brick-and-mortar establishments. Many people use it as an investment to speculate on its ups and downs. Bitcoin balances are kept in encrypted online ledgers. It descends from cyberspace to cash in its chips for hard currency, or in exchange for goods and services.

Truth be told, no government can actually stop it, given that they are all becoming more and more dependent on the digital universe. It has created its own crypto platform on a raft of computers. Like an amoeba, it can break away, multiply and reform in fresh clusters, if threatened. Countries worry about its run-away potential to be used for ‘illegal transactions’, even as they grapple with ways to put a saddle and bridle on it.  But a hamfisted approach could drive it out of reach into the encrypted Dark Web.

If you can’t beat it, you may have to join it. This seems to be what India proposes to do, with the issue of its own RBI issued cryptocurrency. Some are already naming it Bharatcoin. It will probably muck in on the ‘private sector’ Bitcoin and friends user platforms. This will give it a large slice of the cryptocurrency pie, infiltrate this anonymous universe to better understand how it works, and gain the opportunity to make further advances.

Attempting to invent its own international delivery system will kill it dead in the water, especially if other governments decide to also launch. Besides Niti Aayog is already proposing ‘full-stack digital banks’ to end physical branches run entirely on the Web3 internet. It cites the success of UPI with over Rs. 4 lakh crores in value of transactions, while Aadhar based authentications have reached 55 crores.

Prescient El Salvador, the first country to do so, has accepted Bitcoin, the first and most famous of the cryptocurrencies, as legal tender from June 2021. It works alongside normal money for purchases and payments. Cuba and Ukraine are also in the process.

The US, mainly with a view to harness it for taxation has classified it, not as currency but a ‘Money Services Business’ (MSB). It already operates legitimately in the US ‘Derivatives’ market. The American Internal Revenue Service (IRS) or taxation arm, classifies Bitcoin as ‘property’. And where the US goes, most of the free world must follow.

Canada calls Bitcoin a ‘Commodity’. Australia classifies it as an ‘Asset’. The EU also allow its use, and has exempted it from Value Added Tax (VAT).  Britain has put Bitcoin under some tax regulations. Germany is regarded as the Crypto capital of Europe. Many of its stores  have been accepting Bitcoin for several years now. Recently, Germany has passed a law to allow special funds to allocate 20% of their capital in crypto assets. India is about to try regulating them, with a view to taxing them as assets, put in protective provisions to safeguard the unwary, and perhaps try to popularise the sarkari offering by banning private cryptocurrencies.

Interestingly, both China and Russia, large totalitarian systems, have banned cryptocurrencies. How they will enforce such a ban offshore remains to be seen. Minnows such as Vietnam, Bolivia, Columbia and Ecuador have also turned their backs on Bitcoin. 

Bitcoin is the potential darling of black money, a digital hawala on the brink of legitimacy worldwide. It can be used anonymously by intelligence services, evangelists, angel investors, international NGOs, tax-dodgers, criminals, drug cartels, terrorists, and anybody willing to take some risk for possible profit. Like the internet, it is a freeing agent. There is no guarantee than Indians will use ‘Bharatcoin’ when they want to do something naughty or illegal. The only way to regulate it is by following suspicious digital trails and nab the money when it lands in the conventional monetary universe.

 It seems like many moons ago when Shri Ajit Panja, then Minister of Information and Broadcasting (I&B), responded to an ignorant clamour in parliament that wanted Satellite TV banned. Pernicious content, said the naysayers. It will spoil the morals of our children and youth. And this when there was just Star TV available in addition to DD. There was no internet beyond slow ‘dial-up’ in rare clusters.

Panja, in turn, said it couldn’t be done. This country was served by a satellite in space that had a giant  ‘footprint’ ranging from Singapore to the Arabian Gulf, with India in-between. It was a far cry from the technology used by terrestrial TV. Anyone could make a dish antenna in a roadside workshop in the event the government was tempted to ban their manufacture. Now, in the age of OTT and streaming, and yes, Web3, this Panja story seems unreal.

In Afghanistan, then also under Mullah Omar’s Taliban, people made dish antennas to access banned pornography. You were hung if you were caught there, but this did not deter people.

Cryptocurrency is here to stay. It has already knocked a few spots off the concept of sovereignty, and will only advance its game in future. Blockchain works. So does Mining. We may be headed towards a World Currency. All one can do is join the fray and try to duke it out in the free market in the interim.

(1,399 words)

November 25^th, 2021

For: The Sunday Guardian

Gautam Mukherjee