Prime Minister Narendra Modi said one has to be very careful with the usages of cryptocurrency because the major use of cryptocurrencies is to send money across borders. The transfer of money would be hassle-free and anonymous to an extent. With the help of the transaction fees paid by a user is reduced to a negligible or zero amount. It does so by eliminating the need for third parties, like VISA or PayPal, to verify a transaction.
Cryptocurrencies have always kept themselves as an optimal solution for transactions. Transactions, whether international or domestic in cryptocurrencies, are lightning-fast. This is because the verification requires very little time to process as there are very few barriers to cross. Although investing in cryptocurrencies has become a trend, the vulnerabilities in the cryptocurrency have begun surfacing too. This has raised a question in everyone’s mind – Is it too early to invest in cryptocurrencies?
In 2018, Bitcoin turned ten. The cryptocurrency has made headlines on multiple occasions that brought forth its random nature. Yet, the rise of Bitcoin has inspired the creation of thousands of other cryptocurrencies. These days many youngsters and tech enthusiasts and investors are interested in cryptocurrencies, they also continue to have mixed opinions about them. The price of Bitcoin suddenly rose to almost USD 20,000 and then dropped to USD 6,000. Due to such incidents, it is complicated for the investors to trust the ecology. Moreover, many people have no knowledge of how cryptocurrencies work, even if they own some.
Thus, predicting the rise and fall in the value of cryptocurrencies is immensely complicated. Another risk of owning cryptocurrencies is that various new crypto-based companies can create their own currency only to create hype and to attract investors. But, after the investment, the price of the cryptocurrency drops, making the investor bear losses. Likewise, thousands of cryptocurrencies are made with the sole intention of scamming investors and eventually the currency dies. Hence, it becomes complicated for investors to invest in cryptocurrencies.
At present, the infrastructure for cryptocurrencies is not quite established. It is necessary to understand the concept of the scalability dilemma, to find the roots of the scalability problem. Another major issue is that cryptocurrencies are not regulated at all, which makes it even harder for new investors to trust the system. In fact, a lot of people find the idea of investing in cryptocurrencies exciting, only because of the lack of any strict guidelines. We need some regulation to ensure that cryptocurrencies are used ethically and to observe stability in the market. Strong regulations would only make crypto coins and tokens universally tolerable.
While some countries are making regulations for safer and efficient use of cryptocurrencies, others have absolutely banned cryptocurrencies, whereas the remaining countries have no interest at all. Regulation would reduce the vulnerability in cryptocurrency and facilitate the growth of blockchain in mainstream applications. India is also now exploring various options to regulate it.
Increased institutional investment and acceptance of cryptocurrencies such as bitcoin by companies like Paypal and Mastercard and the heightened visibility about the crypto industry in the media have contributed to the boom. Recently a meeting chaired by Prime Minister Modi, the Union government and the Reserve Bank of India (RBI) was not quite on the same page on cryptocurrency — a sector that has been silently blooming in India over the past few months. The Modi government and its departments mooted for strong regulatory control on cryptocurrency to avoid money laundering and terror financing, rather than banning it entirely.
The RBI has constantly reiterated its strong views against cryptocurrencies since it gained popularity in India following a sudden boom in Bitcoin prices. The central bank’s argument is that cryptocurrencies pose serious threats to the macroeconomic and financial stability of the country. The RBI also doubted the number of investors trading on them as well as their claimed market value.
The RBI is primarily concerned about cryptocurrencies for their potential threat to the Indian rupee. If a large number of investors invest in digital coins rather than rupee-based savings like provident funds, the demand for the latter will fall. This will hamper the ability of banks to lend out money to their customers. Moreover, since cryptocurrencies are unregulated in the country and are difficult to trace, the government will also not be able to tax the amount, posing a threat to the rupee.
On top of that, cryptocurrencies can be used in money laundering and illegal activities. Crypto investors, for all these reasons, are in turn vulnerable to hacking, scams, and losses as crypto coins are volatile in nature. While the RBI’s stance remains rigid, it is indeed exploring possibilities to come up with a digital currency. The RBI had announced its intent to come out with an official digital currency, in the face of the proliferation of cryptocurrencies like Bitcoin. Despite all the limitations and potential risks, more and more Indians are investing in cryptocurrencies. A newspaper advertisement in October claimed that Rs 6 trillion has been invested in cryptocurrencies by Indians. Looking at these developments one can assume that Cryptocurrencies may replace national currencies.