This article ‘Is Cryptocurrency the Future of Money?’ discusses whether or not cryptocurrency is the future of money and Bitcoins are expected to one day be utilized as currency or not. Is Cryptocurrency the Future of Money? It’s been 13 years since the invention of cryptocurrency, a digital bartering system based on an encrypted peer-to-peer network. The earliest… Read More »

This article ‘Is Cryptocurrency the Future of Money?’ discusses whether or not cryptocurrency is the future of money and Bitcoins are expected to one day be utilized as currency or not.

Is Cryptocurrency the Future of Money?

It’s been 13 years since the invention of cryptocurrency, a digital bartering system based on an encrypted peer-to-peer network. The earliest and most widely used cryptocurrency, Bitcoin, is threatening the status quo of traditional financial payment methods. Conventional fiat money may be replaced, but the Internet-connected global markets will no longer be restricted by constraints on traditional national currencies and exchange rates because of the advent of cryptographic currencies.

The success of new technology is nearly dependent on the market it aims to serve since technology changes at an accelerating speed. By offering a fee-free trading mechanism, cryptocurrencies have the potential to revolutionize digital markets. There has been a spike in interest in innovative methods to efficiently conduct economic transactions while preserving high levels of transparency and accountability after the financial crisis of 2007–08.

Cryptocurrency has garnered a lot of interest as a potential tool for radically reshaping financial landscapes for the benefit of mankind. It is the purpose of this article to explain in detail how crypto-currencies might be used in order to achieve this aim. There are several factors to consider, including how cryptocurrencies are currently being used and understood by the general population. A few of the most important outcomes are as follows: The phrases “money” and “payment systems,” or the means by which transactions are processed and settled, are occasionally used interchangeably in modern debates and controversies about cryptocurrencies.

Cryptocurrencies have the potential to significantly improve payment systems if designed and implemented correctly. Only a small percentage of the world’s population is familiar with, uses, or is aware of cryptocurrency. People throughout the world believe that central banks should keep issuing money. There is a constant flux in the concept of money. Bitcoin and other virtual currencies are expected to one day be utilized as currency. You’ll be able to pay for coffee and a taxi ride using cryptos.

What Is Cryptocurrency?

The word “Crypto” refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions. It acts as a source of investment as well as a medium of exchange subject to the laws prevailing in respective countries.

Hence, a cryptocurrency is a marketable digital asset or digital form of money, based on blockchain technology that is exclusively available online for the public at large. Cryptocurrencies, as the name implies, uses encryption to authenticate and protect transactions due to which it has little to no room for loopholes in terms of the genuineness of the exchanges. There are over a thousand distinct cryptocurrencies in use today, and proponents see them as the way to a more equitable future economy[1].

Satoshi Nakamoto invented the cryptocurrency in the year 2008. The currency began to be used in 2009 when its implementation was released as open-source software, thereby giving it a sense of application in the trading business.

Cryptocurrencies can either be mined by the miners which involve heavy processing tasks or bought on cryptocurrency exchanges by their potential investors. It is crucial to note that Cryptocurrency purchases are not permitted on all e-commerce sites. As a matter of fact, even famous cryptocurrencies such as Bitcoin are rarely purchased for retail purposes

What Is Bitcoin?

Bitcoin is a decentralized digital currency that may be sent from user to user on the peer-to-peer bitcoin network without the use of intermediaries. It has no control of authority, thereby having an absence of a central bank or single administrator. In order to verify the transactions made in terms of cryptocurrency for public distribution, network nodes are used to ensure the reliability and authenticity of the transaction involved.

Bitcoins are created by miners who undergo a process by which it comes to existence. They can be traded with other valuable items in the market, thus making them a medium of exchange.

The concept is made out of the terms “bit” and “coin.” There is no standard for capitalization of bitcoin; some sites use bitcoin, capitalized, to refer to the technology and network, while others use bitcoin, lowercase, to refer to the unit of account.

How Did It Get So Famous?

Bitcoin was originally money with a philosophy: instead of a central bank, it had code and Nakamoto’s whitepaper, both of which implied cynicism toward traditional financial institutions.

Bitcoin is infamous for the rise of illegal black markets on the internet. It allows the public to trade illegal drugs while being anonymous which can have an adverse impact on the law and order followed by various nations.

Bitcoin revealed to the entire world that, it can be used in two terms. The first one is an investment by the virtue of which investors buy with the view of earning some interest as a result thereof. The second one is a mode of payment of exchange of various commodities in the market. However, there are no legal obligations upon the traders to accept such a mode of payment unless the rule of land specifies so.

Why Is It So Controversial?

Bitcoin has been emerged as a controversial topic around the globe due to its colossal scope of involvement in criminal activities with the sense of anonymity. It hinders the law and order of several nations and puts the rule of the land in immense danger. It has little to no legal recognition which puts a big question mark on its nature and loopholes found as a result thereof.

Can Crypto Replace Money In The Coming Future?

Rise of cryptocurrency trading

Crypto is gaining traction not only in the transaction and payments arenas but also in the trading realm. The majority of investors have cryptocurrencies in their portfolios.

They aid in risk diversification and complete risk minimization. In 2017, there were approximately 35 million authenticated crypto accounts, according to Chappuis Halder. Since then, the number has more than doubled. In 2018, 17 million people were added to this total.

This shows that more traders are getting involved in crypto trading, and the numbers are increasing. Online brokers and financial service providers play a big role in this.

Many top-rated brokers, such as ET Finance, offer customized and adaptable cryptocurrency trading options. These financial service companies generate trading in a variety of cryptos for a modest fee.

As a result of these services, crypto has become more popular in the trade industry.

Concerns that Could Arise If Cryptocurrencies Replace Cash

Obviously, there are various critical impediments and issues related to this situation. Customary monetary standards will lose esteem without change on the off chance that digital currencies dwarf cash as far as utilization. Should digital forms of money totally dominate, a new framework would be needed to permit the world to adjust. The shift would unavoidably be troublesome, as money may immediately become incongruent, leaving certain individuals with lost resources. Set up financial organizations would in all likelihood need to hustle to adjust.

The key is coexistence!

Will cryptocurrencies ever be able to take the place of cash? Yes, without a doubt! Surprisingly, many people around the world, including Deutsche Bank, one of the world’s largest financial services corporations, agree with this prediction. According to this firm, Bitcoin may soon replace fiat money due to the instability of the current system.

Coexistence, on the other hand, is becoming more practical, which is why norms are becoming more important. Cryptocurrencies are currently vulnerable to tweets or comments from major investors, performers, stakeholders, spectators, and even government actions. All of these concerns will be mitigated by a regulatory framework.

Digital money, without a doubt, is the technology of the future. Traditional wallets may become obsolete by the end of this decade, and you’ll be storing money on your phone, but it won’t be fully crypto. Some countries, such as India, are working to create their own virtual money. There have also been rumors that the reserve bank may develop a digital currency in the coming years that will outlast cryptocurrencies.

Crypto Regulations In India

India has adopted a progressive approach while dealing with the matter of cryptocurrencies. It has changed its stance from an outright ban in 2016 to propose the passing of a bill to regulate digital currency. In 2019, ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Bill’ was passed with the intention of immediate suspension on possession, mining, buying, selling, holding, and trading of any such cryptocurrency.

Much recently in 2021, ‘Cryptocurrency and Regulation of Official Digital Currency Bill’ were passed with the intention of regulating and will be making the distinction of when it comes to the often-used categorization as a currency. [2]This bill will also introduce a sovereign digital currency whilst banning all other private cryptocurrencies.

The Reserve Bank of India’s order banning banks from advocating crypto transactions was reversed by the honorable Supreme Court in March 2020. But still, there is no rules and regulation to monitor the usage, trade, etc. of cryptocurrencies in the country.

The new set of rules will most likely categorize cryptocurrencies as public (public backed) or private and most probably ban the private cryptocurrencies as they are decentralized. This will not be fruitful for business and talent as they would be appealed with the prospect of going to countries like Switzerland, Singapore, the USA, etc. where there is no blanket ban on cryptocurrencies/ blockchain technology and scope of growth of the digital economy.

Due to this, India needs to be very careful in making the policies governing cryptocurrencies and make sure that decentralized currencies are not private. Also, transparency and a clear set of rules governing these currencies need to be formed. These rules should define these in more specific terms as a blanket ban can promote parallel economy, encouraging illegitimate use and hence defeating the purpose.

For inspiration, India should look at the model of countries like El Salvador, Cuba, and Iran.

Crypto Regulations Around The World

China

China has banned all virtual currency trading and speculation. It has termed all ‘cryptocurrency’ based business activities as “illegal financial activities” and are strictly prohibited. It decided to boil down on the advertising and registration of cryptocurrencies and tighten regulation on their access.

Earlier, cryptocurrencies like Bitcoin were not banned and their mining, trading was allowed with the condition that the profit from these contributes to the real economy. But much recently, China has started a violent crackdown on the cryptocurrency world. The government and central banks have become increasingly fearful of cryptocurrencies destabilizing their financial systems and other negative consequences, [3]

Bitcoin had once initiated illicit transactions on the dark web and also provides for ransomware attacks. As its value is unstable and it’s worth highly intrinsic, bitcoin has an upper cap on the total number of coins that can be issued, unlike the currencies from government/ central banks, which can be printed at will.

The environmental altercations that come from mining has also been a reason which prompted ten government agencies in China to impose this ban. Carbon neutrality combined with investor protection and financial stability has been three major factors for the new regulations.

The ban on mining and trading of cryptocurrencies, much specifically Bitcoin is bound to affect its sales as 70% of the world’s Bitcoin and other cryptocurrencies are mined and traded here.

Unites States of America

Although much more liberal as compared to the other superpowers, the United States of America still lacks a clear set of regulations and a proper framework to monitor these currencies. The country is home to a large number of blockchain firms and cryptocurrency investors and the Securities and Exchange Commission (SEC) views these as securities and their exchange falls under the purview (regulatory scope) of the Bank Secrecy Act and should necessarily register with Financial Crimes Enforcement Network. In the United States of America, regulators have expressed the need for a greater regulatory hand, pleading that this be provided only by Congress and the president may enact new laws for this technology.

Although many states like Colorado, Ohio, Oklahoma, New York, and many others have formed frameworks authorizing the use of cryptocurrencies- to be sold, offered, exchanged, and accepted as an instrument of monetary value within its government agencies. [4]

Still, the investors and crypto experts demand a new, central law/ framework formulate new rules and regulations which govern cryptocurrencies in the country.

Unites Kingdom

Although it lacks specific legislation on cryptocurrencies and the sector is currently governed by the Financial Conduct Authority (FCA) which grants licenses for crypto exchanges and related businesses. [5]The FCA applies a cautious stance when dealing with cryptocurrencies as the market is very capricious and asks the investors to proceed with caution, regularly issuing warnings. The UK government also collects taxes on businesses and operations conducted by the virtue of cryptocurrencies.

European Union

Cryptocurrencies are legal across European Union with varying cryptocurrency taxation. The European Union has established a robust framework for crypto, The European Commission’s Regulation of Markets in Crypto-assets, also known as MiCA. [6] This legislation will provide a building block for the 27 countries as it identifies different crypto utilities (assets, tokens, e-money, etc.)

Many other countries like El Salvador have been pioneering in their approach as it became the first South American country to officially declare Bitcoin as a legal tender. Although the approach has been condemned by natives and organizations like World Bank, IMF; the president expects to save a huge amount on remittances sent home from abroad.

Analysis of these Regulations

Currently, there is no legislation in India that regulates cryptocurrencies, therefore trading and holding cryptocurrencies are not unlawful. Although cryptocurrency is not legal cash in India, cryptocurrency exchanges are permitted to function. The Indian government, on the other hand, is eager to control cryptocurrencies by prohibiting their usage.

The Indian Parliament is considering a draught bill titled “Banning of cryptocurrency and regulation of official Digital Currency Bill, 2019,” which would outlaw the mining, owning, selling, trading, issue, or usage of cryptocurrencies in India. The Indian government is eager to promote blockchain technology, as well as its use and implementation. It is, however, opposed to the usage of virtual currency. Crypto transactions are encrypted and only the persons involved may see them.

People can avoid paying taxes by turning their money into cryptocurrencies and then transacting in other currencies. In India, the lack of regulation of cryptocurrencies has resulted in a slew of frauds and crimes. According to reports, crypto transactions are being utilized for terror funding and hawala transactions. In recent years, there have been a number of bitcoin frauds. Various Indian investors have lost more than $500 million (estimated) as a result of these frauds. Pluto Exchange, a Delhi-based crypto trading company, defrauded more than $2,72,000 from 43 investors in September 2020 and relocated its operations from India to Dubai.

Recently, the Enforcement Director detained and probed a cryptocurrency dealer located in Gujarat in connection with an online betting racket involving Chinese operators, which disclosed a cryptocurrency trading scheme involving almost INR 1000 crore across numerous exchanges.

The Indian government appears to overlook some beneficial elements of cryptocurrencies. Despite the slowing economy, bitcoin assets provide high rates of return, attracting many Indian investors. The crypto industry in India has the potential to grow massively if it is properly controlled by law. India is home to a huge number of cryptocurrency traders. In this age of technological innovation, banning cryptocurrencies is not a viable strategy for competitive economies.

Conclusion

There was an expectation that legislation on digital currencies would be introduced to Parliament during the monsoon session, but no such thing happened. A report suggests that the law recommends that all private cryptocurrencies be banned in India, except for state-issued virtual currencies. Crypto specialists, on the other hand, are hoping for the best. According to the Secretary of State for Economic Affairs, an inter-ministerial task force on virtual currencies was formed to investigate concerns surrounding virtual currencies and offer specific solutions.

It was recommended by the Reserve Bank of India (RBI) to all organizations regulated by it that they refrain from using digital currencies in April 2018. Banks and financial institutions are now allowed to provide cryptocurrency-related services, following the Supreme Court’s ruling in 2020. Banks were granted permission to accept cryptos by the RBI in May 2021. Shaktikanta Das, Governor of the RBI, stated earlier that there are no disputes between the finance ministry and the central bank.

Among other things, they are considered by the Reserve Bank of India to be a serious threat to the country’s macroeconomic and financial stability. As in India, the rupee is only partially convertible, which allows regulators to regulate and monitor who enters the country’s markets. The very nature of cryptocurrencies is that they are anonymous and free to exchange, which makes it impossible for authorities to monitor or tax transactions. Among the issues discussed are money laundering and terrorism funding. During the Modi administration, high-value banknotes were abruptly withdrawn from circulation as a means of fighting corruption and counterfeiting and pushing the country toward digitalization. This benefited Paytm, the country’s leading online payments company.

McKinsey’s research indicates that cash is gaining popularity again, with 89 percent of payments in the fiat currency in 2020 compared to 100% in 2010. Yet digital retail payments have increased fivefold in the last two years because of the epidemic, making it one of the world’s most attractive locations for venture capital investment. In this respect, Finance Minister Nirmala Sitharaman stated, “We want to make sure there is a window available for all types of experimentation that will have to take place in the crypto sector.” “It’s not as if we’re going to turn inward and say, We’re not having any of this. A very precise location will be taken.”


Dipanwita Chatterjee, the author of the article ‘Is Cryptocurrency the Future of Money? is from KIIT School of Law. This article describes how cryptocurrencies have revolutionised digital markets and can improve payment systems if designed and implemented correctly.


References

[1] Nerdwallet, 28 Jan 2022

[2] Mehab Qureshi, “From ban to regulation, A look at the regulatory journey of cryptocurrencies”, INDIAN EXPRESS (Jan. 27, 2022, 9:50 p.m.), Available Here

[3]Alan John, Samuel Shen, Tom Wilson, “China’s top regulators ban crypto trading and mining, sending bitcoin tumbling”, Reuters (last accessed 27 Jan. 2022, 8:58 a.m.), Available Here

[4] Joe Dewey (Holland & Knight LLP), “Blockchain & Cryptocurrency Laws and Regulations”, GLOBAL LEGAL INSIGHTS, (last accessed 29 Jan. 2022), Available Here

[5] Jocelyn Fernandes, Cryptocurrency Regulation: Here’s what countries around the world have done, MONEY CONTROL (30 Jan. 2022, 12:31 p.m.), Available Here

[6] Nota Bene, “Crypto Travel Rule in European UnionbyEuropean Banking Authority (EBA)”, Available here


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Updated On 2022-03-09T15:23:15+05:30
Dipanwita Chatterjee

Dipanwita Chatterjee

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