Cryptocurrency: A New Age Boon or Pandora’s Box

The Crypto Market in Global Landscape and Rise in India

Introducing Crypto and its Mechanism

There’s no denying that the information and communication technology era has ushered in a plethora of golden chances in a variety of fields. The financial and commercial sectors are one of the domains that profit from these technology and online connections. Virtual world concepts have been triggered by an increasing number of online users, resulting in a new commercial phenomenon. As a result, new forms of commerce, transactions, and currencies have emerged. Cryptocurrency (CC) is one of the most extraordinary financial forms to emerge in recent years. Cryptocurrency is any form of digital money that can be used in various financial transactions, whether virtual or real. These are valuable and intangible items that can be exchanged electronically or virtually in a variety of applications and networks, including online social networks, online social games, virtual worlds, and peer-to-peer networks. Cryptocurrencies are not backed by a government or any other central body. They instead traverse a network of computers. Without the use of a mediator, it is exchanged peer-to-peer across the internet. Cryptocurrencies are decentralized, meaning that no government or bank controls how they’re created, valued, or traded. Cryptography secures all crypto interactions, ensuring that only the sender and intended recipient of a message have access to its contents.

TableIn recent years, cryptocurrencies and blockchain have become trendy issues. Even though the two are frequently used in the same sentence and are plainly related, one should never confuse the two. The backbone of the cryptocurrency market is blockchain, a type of distributed ledger technology. It is the technology that underpins the wide range of cryptocurrencies currently in use. Its scope and applicability, however, are not confined to that. As previously said blockchain may be used in a variety of industries and has a wide range of applications. Therefore, it’s critical to distinguish between these applications and cryptocurrencies, which are just one type of blockchain application.

In reality, the term cryptocurrency is frequently misused in a broad sense; it should be distinguished from tokens and crypto securities. To begin, cryptocurrencies must be separated from cryptographic “tokens,” which provide functions other than and beyond those of a general-purpose medium of exchange. Tokens are issued as part of an Initial Token Offering, or “ITO,” to raise funding for a particular project or business. They are a new type of crypto asset (digital assets recorded on a distributed ledger and secured by cryptography) that represent a claim against an entity (or against its cash flows, assets, residual value, future goods or services, etc.) resulting from the usage of blockchain technology.

Secondly, cryptocurrencies should be separated from a concept dubbed “crypto securities” recently. In a nutshell, it has been proposed that blockchain technology be used to register, issue, and transfer regular shares and other corporate assets, ensuring that a company’s capitalization table is always accurate and up-to-date. Because this technological procedure would be protected by encryption, these securities have been dubbed crypto securities. The only link between this new notion of “crypto securities” and cryptocurrencies is that both use blockchain technology.

Cryptocurrency is stored in a ‘wallet,’ which may be accessed with the ‘private key,’ which is the crypto equivalent of a super-secure password without which the cryptocurrency owner cannot access the currency. A cryptocurrency wallet maintains the private keys that allow a user to transmit and receive cryptocurrencies such as Bitcoin and Ethereum. It’s worth noting that the coins are stored on the blockchain, and there is a need for the private key to send them to someone else’s wallet. There are various sorts of crypto wallets available, each with its own set of security, reliability, accessibility, and other features.

Although Bitcoin is the most well-known and discussed cryptocurrency, it is not the only type. Litecoin, Polkadot, Chainlink, Mooncoin, Shiba Inu, Dogecoin, and other cryptocurrencies are among them. According to CoinMarketCap, there are currently over 6,000 coins available. The most stable cryptocurrency is Bitcoin. Bitcoin was the first cryptocurrency, and it traded for less than a dollar when it was launched. Bitcoin’s price has risen steadily throughout the years, surpassing the $1 trillion market value.

The cryptocurrency market is a new stage on which various players each have a distinct role to perform. The “cryptocurrency user” is the first and most important player. He is a natural person or legal entity who receives coins in order to use them to purchase real or virtual goods or services, make peer-to-peer payments, or keep them for speculative investment purposes. The “miner” is a second player who helps to validate transactions on the blockchain by solving a “cryptographic puzzle.” The so-called “cryptocurrency exchanges” are a third important Info 1category of companies. Cryptocurrency exchanges are individuals or organizations that provide cryptocurrency users with exchange services in exchange for a fee (i.e., a commission). They enable cryptocurrency users to exchange their currencies for fiat currency or to purchase new coins with fiat currency. Aside from cryptocurrency exchanges, so-called “trading platforms” play an essential role in cryptocurrency trade. These exchanges bring together cryptocurrency users who are eager to purchase or sell coins and provide them with a platform where they may deal directly with one another. ‘Wallet providers’ are yet another important group. These entities offer cryptocurrency users digital wallets, also known as e-wallets, which are used to hold, store, and send money. “Coin inventors” are a type of players who are individuals or groups who created the technical basis of a cryptocurrency and established the first rules for its use are known as coin innovators. The “coin offerors” are the final group of important players to be noted. Individuals or groups known as coin offerors provide coins to cryptocurrency users upon their initial release, either for a fee or for free, intending to fund the coin’s ongoing development or increase its early popularity.

Businesses involved in this Medium

Cryptocurrencies make it easier for users to trade and complete financial transactions. Simultaneously, they made it easier and more efficient to earn, spend, exchange, and accumulate money. They are used to buy virtual goods within the same environment or to exchange currencies between platforms. Furthermore, they are used to purchasing both digital and physical goods. As a result, cryptocurrency provides numerous opportunities for businesses and operators to monetize their applications and thus increase their revenues.

Numerous types of cryptocurrencies are used in various platforms, such as cryptocurrency in social networks, cryptocurrency in social games, loyalty points, and cryptocurrency in peer-to-peer networks. These platforms are divided into two types: centralized cryptocurrency platforms and decentralized cryptocurrency platforms. A centralized cryptocurrency is a cryptocurrency system with a centralized repository, similar to a central bank. The administrator of that repository has complete control over transferring the Cryptocurrency value from one person or location to another. On the other hand, decentralized cryptocurrency is a cryptocurrency system with no centralized repository and no single administrator. Decentralized cryptocurrency can be obtained through computing or manufacturing effort. Many business activities have been involved in both Cryptocurrency categories, including the following:

Obtaining and Generating Cryptocurrency –Because there is no universal virtual currency across the digital medium, there are several different ways and methods to obtain or generate virtual currencies. The few prominent ones are ‘Pay for cryptocurrency method,’ ‘Offer based method,’ ‘Loyalty based effort,’ ‘Self effort-based method.’

Spending and exchanging cryptocurrency- Spending and exchanging cryptocurrency can be divided into two major categories: exchanging cryptocurrency for virtual items within the virtual environment and exchanging cryptocurrency for real items such as money, goods, and services.

 As to where the cryptocurrencies are traded, there are two main markets: the derivatives market and the spot market. The local market, also known as the spot market, is a market in which transactions are guaranteed to be completed immediately. Both buyers and sellers are present in the spot market, and the transaction is completed immediately; the seller transfers the cryptocurrency to the buyer at the spot price, which is the price at which the asset is trading at the time. The exchange regulates and settles the transaction immediately. In this type of market, there is no lag.

Info 2Then there’s the derivative market; derivative contracts are synthetic and have no intrinsic value of their own; they derive their value from the value of the underlying instrument, which in this case is Bitcoin. Derivative markets provide a great deal of flexibility to investors and traders who use them for a variety of purposes. Larger players with deeper pockets, such as institutional investors, asset management firms, and banks, use derivatives markets to hedge their positions and protect their capital from the price volatility of Bitcoin. Bitcoin is inherently volatile, with huge price swings in both directions. Traders use the derivative markets to protect their positions in the spot market.

The Crypto Market in Global Landscape and Rise in India

Since the dawn of the internet age, people have desired a form of money that was unique to the internet. This resulted in the search for e-money. Netizens thought e-money was the next best thing. Several entrepreneurs attempted to create digital currency or e-money throughout the 1990s. PayPal, led by Elon Musk, was the first originally conceived native digital currency. However, because of the ‘double spending’ issue, digital currencies were difficult to manage. The double-spending problem was solved in 2008 by a pseudonymous ‘Satoshi Nakamoto,’ and the Bitcoin network went live in January 2009. Since then, the present scenario has been quite different; the global market price of the cryptocurrency in 2020 is USD 826.6 million. The growth of distributed ledger technology and rising digital investments in venture capital are the primary factors driving the market’s expansion. Developing countries have begun to use digital currency as a medium of financial exchange. The growing popularity of digital assets such as bitcoin and Litecoin is expected to fuel market growth in the coming years. People in developed countries are more likely to use digital currency because it is a simple and flexible transactional method. Because of the popularity of virtual currency as a medium of exchange, the central bank decided to support it. The central bank patented Central Bank Digital Currency (CBDC) activity provisions for digital currency projects in many developed countries, including the Bank of Thailand and the Central Bank of Uruguay, which are both using the toolkit in their CBDC evaluation processes. In 2020, North America held the highest proportion of the worldwide market since most countries in the region recognized bitcoins as a form of exchange for tax purposes rather than currency. Aside from many technological advancements, the acceptance of virtual currency by several platforms in Japan and Taiwan is projected to have a significant impact on the Asia Pacific market. Many countries in Europe, the Middle East, and Africa are demonstrating methods to cryptocurrency adoption.

COVID-19 has had a global impact that is unprecedented and astonishing, with cryptocurrencies experiencing a positive demand shock across all regions as a result of the epidemic. According to certain estimates, the global market would rise by 10.0 percent in 2020 compared to year-on-year growth from 2017 to 2019. During the period 2021-2028, the market is expected to increase at a CAGR of 11.1 percent, from USD 910.3 million in 2021 to USD 1902.5 million in 2028. The constant increase in CAGR is due to this market’s demand and growth, which is expected to return to pre-pandemic levels after the pandemic is ended.

India, which has a population of over 1.3 billion people, has experienced an economic rebirth in recent years. The country’s growth has been so rapid that the IMF has dubbed it the fastest-growing emerging economy. Although it is a country steeped in mystery, history, and culture, it does not lag in terms of technological growth. Small-scale Bitcoin transactions were apparently taking place in the country as early as 2012. Bitcoin was still in its early stages of development, and only crypto enthusiasts were interested in it. By 2013, Bitcoin had reached a point where it was gaining traction in several nations. A few establishments started accepting Bitcoin payments that year. Kolonial, a vintage-era pizza store in Mumbai’s Worli neighbourhood, is the first restaurant in India to accept Bitcoin payments. Within a short period, bitcoin exchanges sprung up all across the country. BtcxIndia, Unocoin, and Coinsecure were among the first to offer cryptocurrency exchange and trading services in India. The crypto market in India has risen from a tiny level in 2013 to what it is today, thanks to the spread of crypto trading and exchange platforms. Prime Minister Narendra Modi announced the start of the demonetization process on November 8, 2016. The government’s decision to demonetize over 86 percent of the country’s paper currency sparked outrage across India’s subcontinent. People who had a lot of cash needed a new way to keep it without paying a lot of taxes or being subjected to a lot of scrutiny from the government. Some people began to buy huge amounts of Bitcoin or other cryptocurrencies with the intention of selling them later. This allowed them to avoid paying significant taxes if they had tried to circulate their riches through the banking system.

Although, the country’s demonetization program in 2016 sparked widespread acceptance of cryptocurrencies, realities quickly emerged that hampered the market’s growth. Indians find it difficult to interact with many of the main overseas crypto exchange platforms due to a lack of large-scale mining facilities and severe government controls on international money flow. The Reserve Bank of India (RBI) has repeatedly warned citizens about the dangers of cryptocurrencies. While the government of the country has not to outright ban cryptocurrencies, it has not endorsed them either. In terms of India, the coming months will tell the direction in which the crypto industry will move.

Cryptocurrency: Is it Sustainable

Recent Events Surrounding the Status of Cryptocurrency in India

Cryptocurrency has gained popularity in India as a result of the widespread adoption of digital technology. Trading in an uncontrolled sector, on the other hand, can result in money laundering, fraud, and even terrorist support. As a result, tax adjustments are needed to account for the money created by consumers in this rapidly increasing new sector. However, there was no protection in place in India, neither for consumers nor for business owners. In the interest of consumers, the government issued a warning about the dangers of dealing with virtual currencies, stressing that virtual currencies are not legitimate legal cash in India and that they are not subject to regulatory oversight.

The Reserve Bank of India (RBI) banned the trading of virtual currencies in India in an announcement dated April 6, 2018. The central bank, in exercising its authority, said that firms authorized by the RBI will not deal in virtual currencies, according to the notification. As a result, consumers were unable to conduct or settle cryptocurrency transactions because the RBI’s bank institutions do not deal in the acquisition or sale of virtual currency. However, when the Supreme Court invalidated the RBI’s 2018 circular in the case of Internet and Mobile Association of India vs. RBI in March, these were overturned. The Supreme Court stated that because there is no legislation prohibiting the purchase or sale of cryptocurrencies, the RBI cannot impose unreasonable limitations on cryptocurrency trading. The court found that such limits would infringe on persons’ basic right to engage in any lawfully permitted trade.

Info 3While overturning the RBI order, the Supreme Court merely ruled that there is no legal basis for imposing severe restrictions on cryptocurrencies at this time. Once a law prohibiting the use of cryptocurrencies is passed in Parliament, the court’s position may change. The RBI, on the other hand, may have felt obligated to make the latest clarification solely because certain banks recently used an invalid 2018 circular to prevent customers from dealing in cryptocurrency. Because of the legal uncertainties around cryptocurrencies, banks have been hesitant to allow their customers to trade in them. Meanwhile, the Centre is debating whether to put a complete ban on cryptocurrencies.

With the rise in popularity of cryptocurrencies like Bitcoin among residents, the government has been compelled to accept a position on their legal status. Hence in this winter session of Parliament, the Union Government will introduce a Bill to regulate cryptocurrency and, ostensibly, ban all private cryptocurrencies. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which has yet to be officially approved by the cabinet, aims to create a framework that will make it easier for the Reserve Bank of India to, develop an official digital currency.

The central bank intends to start a pilot project for an official digital currency soon. “The Bill also aims to make all private cryptocurrencies illegal in India.” According to the Bill’s declared purpose in a Lok Sabha bulletin, “it permits for specific exclusions to promote the underlying technology of cryptocurrency and its usage.”

RBI in Making New Crypto

Like other economies, India’s Reserve Bank is developing its own Central Bank Digital Currency (CBDC). The RBI’s Deputy Governor, T. Rabi Sankar, spoke at length about the reasons for establishing a digital rupee as well as the potential dangers.

Info 4A CBDC is similar to the currency in our wallets, with the exception that it lives in digital form in a central bank-supervised digital wallet. The digital rupee works in the same way as rupee coins and notes in terms of economics. It’s just a type of fiat currency that’s supported by the government but has no real value. In fact, it’s comparable to private digital currencies in that people accept them just because they think others would. It’s worth noting that the RBI’s digital rupee won’t be able to completely replace bank demand deposits. Banks will continue to use physical cash, and consumers can still withdraw cash from them. However, individuals have the option of converting their bank deposits to the new digital rupee.

Critics believe that as CBDCs become more popular, people may start withdrawing money from their bank accounts. Many depositors now keep their money secure in bank accounts. People may move their money out of banks if CBDCs can fulfil the same purpose. The interest rates offered by banks may be able to counteract this.

Even former Reserve Bank of India Governor Raghuram Rajan has warned central banks to be cautious about creating their own digital currencies, claiming that it could lead to poorer consumer options and stifle private-sector innovation.

Indian Governments Take: Ban or Regulate 

The Union Government has taken a more measured approach to deal with cryptocurrencies than the RBI, which has been adamantly opposed to the idea of legalizing cryptocurrencies. The RBI, on the other hand, has remained firm in its assessment of private cryptocurrencies as a threat to financial stability. However, the growing popularity of cryptocurrencies among residents may have influenced the government’s decision to regulate rather than outright ban them. Even if cryptocurrency exchanges’ usage estimates are overstated, it’s difficult to deny that the popularity of these virtual currencies is rapidly increasing. Second, the Union Government may not want to put an end to the fledgling cryptocurrency business, which many feel has the potential to become a financial innovation hub. Blockchain technology, for example, maybe used for more than just facilitating cryptocurrency transactions.

Info 5The government is unlikely to allow cryptocurrencies to grow in popularity as a danger to the rupee’s sovereignty. Former RBI Governor Duvvuri Subbarao has warned that the widespread use of cryptocurrencies could jeopardize the central bank’s capacity to successfully conduct monetary policy. As a result, the government’s willingness to adopt cryptocurrency is unlikely. While cryptocurrencies may be acknowledged as speculative assets, they are unlikely to be recognized as full-fledged currencies that compete with the rupee.

Although there was a debate in India over whether strict controls would be applied and crypto profits would be taxed. There was also talk of a blanket ban, which caused the prices of major cryptocurrencies to plummet. It’s unclear what kind of restriction will be implemented in the end. But the illegal acts will very definitely be controlled to some extent in a regulated market.

Present Volatility and Its Concerns on the Future

Cryptocurrencies have a high level of volatility. Bitcoin (BTC), the most valuable crypto coin by market capitalization, achieved a high of $66,281.57 and a low of $42,874.62 in the last month, a difference of about 54% if the lowest price is used as the current price. Similarly, Ethereum was at $3,680.61 at its lowest point and $4,891.70 at its highest point, a 32% shift over the same period. International Monetary Fund in its Article IV mission 2021 to El Salvador cited, because of the high volatility of cryptocurrencies, their use as legal money poses a substantial risk to consumer protection, financial integrity, and financial stability. It also creates fiscal contingent liabilities as a result of its use.

Although crypto proponents stand by the decentralized dispersed networks of blockchain, claiming that they are better suited for low-frequency flows. They are also thought to be good possibilities for cross-border payments; however, this raises the possibility of unlawful cross-border financing generation. Terrorist financing is a major worry that the Indian government intends to solve through cryptocurrency legislation.

Cryptocurrencies are decentralized, unlike fiat currencies, which are regulated by governments. As a result, no single organization is in charge of the flow of money. However, because it does away with government and regulation, there would be no one to safeguard the poor and impoverished who may not have a strong understanding of technology.

With the increased use of virtual currency, numerous issues must be considered to maintain control over such a financial system. The future of cryptocurrency in India is entirely in the hands of legislators, who will decide whether or not to outlaw the currency. To oversee and manage this new era of digital money, strict rules and laws must be enacted. Cryptocurrency’s future looks bright, with more chances for good change and advancement in the e-Business and e-Payment sectors. As a result, it will continue to evolve swiftly as technology improves, and India, in the midst of its digital revolution, must find a way to accept it by channelling human capital, skills, and resources to emerge as one of the wave’s victors.


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