By Vishal Sarin
“If you don’t believe it and don’t get it, I don’t have the time to try to convince you. Sorry”. This is how Satoshi Nakamoto, a pseudonymous person, developer of bitcoin and the man who authored white paper of bitcoin, made people to understand the importance of cryptocurrency. On the other side, legendary investor, Warren Buffet, warned people to stay away from it, terming cryptocurrency a mirage, he prophesied that cryptocurrency will come to a bad ending. Dilemma of ‘to be or not to be’ still haunting the world for this ‘decentralized money’.
While China has put up a blanket ban of cryptocurrency and terming it illegal, whereas a recent assessment revealed that Indian became world’s highest number of cryptocurrency owner at 10.7 crore. Largely unregulated, crypto assets have grown by 200% so far this year, from just under $800 billion to $2.3 trillion, without the backing of an asset or fiat currency. Despite absence of direct control of central authority, cryptocurrency ownership has been showing exponential growth, now this raises the eyebrows, that why governments are allowing it? If they are allowing their citizens to trade in cryptocurrency, then why not regulating it? Both questions hold hazy solutions, as control is the major issue which is frightening the Central Banking authorities across the world, as controlling currency (legal tenders) serves many macroeconomic and geo-political interests, which may go haywire if one legalizes the cryptocurrency.
Stateless nature of decentralized currency will circumvent capital control and exporting wealth. The ability to bypass existing financial infrastructure will make this currency a heaven for criminals, especially involved in money laundering. A biggest argument which is hindering the movement of crypto juggernaut to be a part of global financial asset is that, it has not been regulated. This lead to many skull doggery prepositions like, is cryptocurrency a currency to be used in daily transactions or a store of value that is primarily used for investment purpose? Is cryptocurrency a safe haven asset during the time of financial crisis or in recession like situation? Nobody knows the exact answers.
Another multimillion dollar question still looking for sensible answer is that, can a “peer to peer version of electronic cash” qualified to be termed as money. On these questions the world is still waiting for eureka moment. Recently, Vladimir Putin, President of Russia, urged the monetary authorities of the world to show tolerance for cryptocurrency, his statement acted as a silver line for the future of cryptocurrency. Mr. Putin further mentioned that such currencies have a long way to go before they may be used as digital currencies for official trade among countries. This certainly was a sanguine moment for cryptocurrency owners. In recent developments, connections between cryptocurrencies and the traditional financial system has been growing as big investors, hedge funds, and banks are becoming more involved. If issues related to investor protection, presence of systematic clearing houses for stable cryptocurrency coins fall in place then cryptocurrency can legally be a part of monetary system. Here, it is worth mentioning that cryptocurrency solves three basic problems of financial infrastructure system dominated by central banks
a) No one can counterfeit cryptocurrency; hence problem of double spending would be eradicated
b) Despite being decentralized system; cryptocurrency is still trustworthy owing to its algorithmic construct i.e. transactions on cryptocurrency network have to be approved by nodes spread across the world to be included in its ledger. A single disagreement can make the whole transactions ineligible.
c) Cryptocurrency completely eliminates the need of producing and distributing currency. Intermediaries are not required for peer to peer transfer between two addresses of cryptocurrency blockchain.
Although, all these solutions come with strings attached as acceptability of cryptocurrency across nations would be a big challenge to address. Whereas country like El Salvador has made cryptocurrency a legal tender, while other nations of the world, including China and United States, have banned cryptocurrencies. Despite all these issues, if government helps by providing a new framework for regulating digital assets, separate from traditional financial system including the protection of digital assets holders from fraud, market manipulation and disclosures to promote transparency then cryptocurrency has good chance to become the future money, as one must not forget that revolutions never go backward.
The author is an Economics teacher at Mittal School of Business, Lovely Professional University