The Indian government has announced that the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is expected to be tabled in the Winter Session of Parliament. The bill will seek to create a framework for the official digital currency to be issued by the Reserve Bank of India. The bill looks to “prohibit certain private cryptocurrencies while allowing certain exceptions to promote the underlying technology and its uses.”
The Central Bank digital currency is a systematic first step towards adoption of blockchain technologies for enhancing administrative service delivery capabilities to the remotest parts of the country. This will pave the way for legalising crypto currency in India. It seems the Indian government comprehends the complexities involved and is moving in a critical, balanced and thoughtful manner.
It seems India is planning to restrict private coins that by their design restricts access to their transactional information. This could also be a welcome move because such coins could be abused in the dark net and for money laundering. It is a systematic progressive step towards adopting new technologies that will help break the imperial shackles of bureaucracy laid down by the British colonial system.
The government notification has created some consternation in the crypto markets and some of the coins have dropped as much as 20%. Taking advantage of this mayhem, some so-called experts are fanning fuel to the fire by advancing their conspiracy theories to trash cryptocurrency and kite-fly certain myths. To elevate the level of discourse in crypto in India, we must understand a few basics regarding cryptos and dispel these nine widely held myths.
Myth 1: Crypto is gambling
Under existing laws, tokens are not securities. A token is just a computer code, code is just speech and speech is just an idea. A lot of cryptos have real end use applications or are solving real life issues. Just as the Indian stock markets of the 1980s saw huge speculation, scams, wrongdoing, it was not gambling. Similarly, cryptos are not gambling. Even if the government bans trading in some coins, it cannot stop the idea or the technology behind it. That apart bans have never worked. For example, George Orwell’s 1984 became a global bestselling book just because it was banned by some overreaching bureaucrat.
Myth 2: People will lose money in crypto
We have seen, whether be it in personal life or business, no one is free from falling into a fraud. Even large investors have lost millions for not verifying the basics. Therefore, the tulip mania and teakwood frauds happened because investors did not do their basic due diligence. Such things also happen in highly regulated markets like stocks, bonds, and currencies.
People have fallen prey to easy moneymaking schemes, as they have not understood the technology. If you don’t verify the basics like functions of a contracts of the tokens they have invested or the amount of non-blocking tokens managed by the developer team, or investing in projects that have no real use utility in the future, then you can lose money. Then it can become like a Ponzi scheme with a pump and dump mechanism.
Myth 3: Cryptocurrency has no underlying assets so it is a Ponzi scheme
Cryptos are codes. When two codes transact in real time, they cannot wait for the different rules of several nations involved in the transaction to agree on uniformity. The adoption of this technology has been very fast and sweeping across the globe and people are using cryptocurrencies to buy sandwiches, arts, mobiles and maybe much more. It is a losing game trying to restrict the technology. Generally accepted accounting principles (GAAP), treat cryptocurrency as an intangible asset (not a financial asset) that is recorded at cost, and impairment of the asset cost must be recorded. This means the value can be reduced on a balance sheet over time.
When you deposit currency into a bank, it is storing it in a vault until you return to withdraw it. Effectively your bank deposit is a loan from you to that bank which holds zero reserves, making you an unsecured creditor. So even the safest investment in the current world – that is bank fixed deposits – do not effectively have underlying assets. It runs only on your belief that somehow the government is going to step in and save the bank depositors in a crisis.
Myth 4: Cryptocurrencies are a ‘limited supply of nothing’
I will give you an example to contend this apprehension. There is no limited supply for Ethereum, which ranks just after Bitcoin in popularity. More importantly, Ethereum daily earns $80 million in just platform fees from third parties.
Myth 5: Crypto counters authority of governments
Not necessarily. Indian government may move to regulate cryptos as an asset class while at the same time providing regulatory supervision where cryptos are used as a medium of exchange. The modern monetary industrial complex is running on the US dollar and some of the powerful countries are trying to run away from the dollar fiat system. India will have an edge if it introduces an alternative digital universal payment system.
Myth 6: You cannot get super rich investing in cryptos.
Try telling this to those who invested in BITCOIN between 2010 and 2013. To add to that, cryptocurrency is ideal for India to pitchfork into the big league of nations. Indian youth has education, enterprise, and innovation. If they can build and sell WEB 3.0 technology solutions, we can define the future of the globe.
Myth 7: There cannot be a global consensus on ONE private crypto needed to become global currency
The waves of centralisation and decentralisation always happen in cycles like the ebb and flow in the leitmotif of time. At one point we had millions of tribes doing their own thing and then most of them came under the Catholic Church. Then around the turn of 16th century, the printing press and Martin Luther led to decentralisation that resulted in the birth of different religious sects, philosophies, nation states that ultimately heralded the industrial age.
Myth 8: Crypto is just speculation and it’s not really a market
The web 3.0 technology evolution is already happening on chain. So tradeable digital assets in the DeFi (decentralized finance) matrix will lead to transparency of order books across the globe. Order book transparency can remove 99% of the ills of the current centralized market infrastructure. In DeFi, automated order books can make instantaneous price discovery across tokens, contracts, NFTs, fiat money, arts you name it. That is the future of modern markets.
Myth 9: Cryptos are bad for the environment
More than cryptos, the greed of human beings is bad for the environment. The answer is not to stop living but to evolve and fix the flaws. The energy use and high gas fees are just temporary, fixable flaws in the cryptocurrency ecosystem.
Conclusion
The revamping of the financial system through the introduction of digital currency will tear down the existing system manipulated by individuals and corporations for their own benefit. The blockchain platform developed by India will be a milestone for rural economic development. I contend that a central bank blockchain platform along with a regulated crypto market will benefit the Indian technology ecosystem. It is my firm belief that the government will take into consideration the views of all the stakeholders before drafting a comprehensive legislation that builds in the aspirations of the technology and the financial community.
(Santanu Chakraborty is a markets maximalist who has founded a company that is developing blockchain technology solutions. He is an investor and a digital technology enthusiast. He was the former markets reporter with Bloomberg LP and Dow Jones/Wall Street Journal. He could be contacted on [email protected])
