Reserve Bank of India (RBI) Governor Shaktikanta Das has many concerns about their impact on cryptocurrency and financial stability. Although he did not say anything about what kind of cryptocurrency he is concerned about, but it can be assumed that it contains basic bitcoin, Ethereum like Ethereum which is around 9,000 and which is growing very fast and finally the initial coin. Offerings (ICOs) are also included which are used by most of the traders in the technology business while issuing symbolic funds. The concern is with StableCoin’s category of cryptos that reduce the volatility of a particular asset or group of assets.
Like many other central banks of the world, RBI is also in favor of bringing its digital currency. China has already withdrawn such a currency while the US central bank is about to bring in its digital dollars. It is nothing more than a digital representation of the country’s currency. That is, it will in a way be the digital form of official currency.
The Indian government is equally concerned about crypto as RBI. According to reports, it plans to enact a law that will ban all types of cryptocurrency while the RBI will issue an official digital currency.
But if all types of private cryptocurrency were banned then it would be like denying valuable goods along with some unwanted items. Its roots lie in the lack of understanding of the technology and the philosophy behind cryptocurrency and the use of the word Mudra which is completely misleading.
In the first cryptocurrency, Bitcoin equivalents, there was a mode of transaction where a central institution was not required, but rather kept the cryptographic evidence in a shared public account. It was constructed under the pseudonym Satoshi Nakamoto. It is still not clear whether this was an individual or a working group of programmers. The identity of Satoshi Nakamoto is still confidential.
In the beginning, bitcoin was curiosity of the great experts. In 2010, Laszo Yesage paid 10,000 bitcoins for two pizzas. According to the current difference between bitcoin and the dollar, the current rates amounted to half a billion US dollars for two pizzas. As Bitcoin became popular, its price kept fluctuating. On most occasions it gained momentum. When Elon Musk of Tesla bought one billion dollars worth of bitcoins, there was a tremendous rise in its value.
Several economists have warned against him, including Joseph Stieglitz, Kenneth Rozoff and Noriel Rubini. Bill Gates is also among such individuals. Meanwhile, people concerned about the Earth and the environment are concerned that the creation of cryptocurrencies or the confirmation of its transactions consumes too much power. Researchers at Cambridge recently researched the subject and said that bitcoin currently has more electricity than a country like Argentina. Central bankers and governments are concerned that their nature is such that criminal entities can use it in large-scale money transactions.
These concerns are justified to an extent. Apart from the cryptocurrency which is functioning without regulation in the financial structure of the world, there is chaos. If criminals can use cryptocurrency then they also use gold and silver. A complete ban on cryptos and replacing them with a digital currency of the central bank is not the solution.
The digital currency of the central bank will also fluctuate in the same way that paper currency comes in. Pure cryptocurrencies that are not associated with anyone should be treated as an asset class where pricing is broadly based on what its availability is and what the buyer is willing to pay. From this perspective, it is like pouring color on a public wall. If a big artist has done this, then you can consider it as an artwork or you can also call it a completely useless poured color. What one is willing to pay is entirely up to the buyer.
The case of StableCoin is quite different. Some of those properties may be absolutely cryptocurrency and they may also have a central bank behind them. But they are related to the value of the physical asset. Suppose a stableCoin is associated with gold, it will be similar to a gold bond. Just releasing and monitoring them will make a difference.
The right way to regulate pure cryptocurrency would be to create a systematic system and regulatory framework that is suitable for the commodity or alternative investment category. In addition, authorized brokers and official exchanges should be allowed to buy and sell and borrow on the basis of their current value. Transactions within established cryptocurrencies such as Bitcoin or Ethereum must be allowed within the country and are used only by registered brokers and exchanges. Transaction and settlement limits should be fixed and monitored.
StableCoin will require a separate exchange. Perhaps a system like commodity exchange will be needed. In both cases, proper regulatory arrangements and methods of disposal are required.
The government has to understand that today cryptocurrency has the same importance as that of shares in the 17th century. They cannot be ignored for long.