Few will question the Centre’s decision to regulate cryptocurrencies by bringing forward the ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ in the winter session of Parliament beginning this month. One good thing is that there will be no blanket ban on such currencies. In fact, they will be allowed under certain conditions, which have not yet been explained. That Bitcoin and other such currencies have been gaining popularity in the country is obvious from the increasing investments people have been making in the new form of currency. They are worth at least Rs 60,000 crore, certainly a large amount.
The announcement had a depleting effect on Bitcoin and other cryptocurrencies which lost value by about 18% in one day, certainly a matter of grave concern for the investors. The Centre’s idea is to have a cryptocurrency, introduced and regulated by the Reserve Bank, as in China. It is worth noting that though Bitcoin has been around for a little over a decade, no country except El Salvador, has accepted it as a legal tender. In contrast, there are many countries such as Nepal which have totally banned it. What worries countries is that cryptocurrencies are totally outside of government regulation.
Yet, if they have become popular, there are many reasons for it. The first and foremost is that it employs state-of-the-art technology under which a Bitcoin is almost impossible to be duplicated. This is because a large cluster of computer systems are involved in the generation and documenting of data related to, say, a Bitcoin, unlike the currency notes which can be photocopied and passed off as the real ones among the gullible. Cryptocurrency, therefore, signifies a quantum jump in the development of currency from the days when the barter system was in vogue all over the world.
As digital technology is increasingly used in banking transactions, it will be in the fitness of things if an RBI-approved currency like Bitcoin is issued. It will also address the concerns of the ordinary people who believe that a government guarantee like the guarantee that a currency note carries will lend it greater acceptability. Since there is no cost of printing and the need to replace soiled notes, it will be economical to issue and manage. As the prime minister mentioned recently, there is a need to ensure that cryptocurrency does not fall into the wrong hands. Strengthening the technology can certainly nullify the fear.