TheCrypto Assets Conundrum- Associated Concerns with Cryptocurrencies
Secrecy: Cryptocurrency enables relatively invisible transactions, with serious implications for crime, terrorism, money laundering, tax evasion, etc.
Speculative Asset: Another worry is that a crypto mania is getting built of purely speculative investments. The eventual bursting of such bubbles will badly hurt people.
Threatening Macro-economic stability: cryptocurrencies threaten the state’s macro-economic role.
The Crypto Assets Conundrum- Government’s Stand
Government’s dilemma: Government proposes that cryptocurrencies be banned but crypto assets be legalized and strongly regulated.
This is due to Government’s dilemma as it wants to avoid any tech-unfriendly image.
Rationale: Through the above, the government aims to address the following issues-
The problem of invisible value transactions gets taken care of,
The interests of investors are protected, and
The tech industry’s demand is met halfway.
The Crypto Assets Conundrum-Issue with government’s stand
Asset vs Legal Currency: The distinction between an asset and currency may not be so much legal as it is about the inherent characteristic of what is considered an asset or currency.
Land, gold and stocks do not lend themselves to becoming common mediums of exchange because these assets are not easily divisible and portable.
On the other hand, crypto is more divisible and portable than even physical currency.
Once legalized, crypto-assets may become a medium of exchange.
Speculation vs Asset investment: Crypto assets are either ‘purely speculative assets’ or they have some underlying value, in which case such ‘value’ can consist only in their future as a medium of exchange.
A purely speculative asset has zero underlying value (unlike assets like land and gold).
If the Government legalizes a purely speculative asset, it provides a green signal to investors to invest in it and blow into the bubble.
When the bubble bursts, there may be a heavy political price to pay for the ruling dispensation.
A weak argument in favour of legalizing Crypto assets for promoting Blockchain Technology:
Legalizing crypto assets primarily to support blockchain technology is like signing on to the use of space as a new frontier of war just because it would promote India’s space industry.
The Crypto Assets Conundrum- Way Forward
Promoting Blockchain technology in other areas: Government should promote various innovations and services using blockchains
Promoting a Central Bank Digital Currency: A centralized digital currency having legal status should be promoted as an alternative to private cryptocurrencies.
International stand: It is true that India’s decision alone would not determine this issue. But with China having already banned crypto, what India decides at this stage would count for a lot.