INTRODUCTION
In the 21stcentury the next breakthrough after the innovation of
the internet was Cryptocurrency. One of the best-known
cryptocurrencies is Bitcoin which was introduced in 2008 having a
value of zero, and if we talk about the same in today’s time
the value of the same Bitcoin is in lakhs of Indian Rupees.
Cryptocurrency Explained
Just like the currency of any other country, a Cryptocurrency is
also a form of currency. It is not a physical currency but a
digital currency. If we talk about India, Indian currency can only
be used in India but it is not the same as Cryptocurrency, it can
be used in any country as it is a globally accepted currency. The
second advantage of such currency is that it is not regulated by
any central authority or Government and there is no involvement of
any middle man.
To start simply, Cryptocurrency does not have any physical form
but is a computer file that is stored in a digital wallet. In
exchange for money, cryptocurrency can be purchased. The biggest
advantage of cryptocurrency is that it is used in the sale and
purchase of goods and services. Cryptocurrency is also in limited
supply because of which the demand is high. Unlike a bank
transaction where bank details are easily available but it is not
the case in Cryptocurrency, here no one can access the information
regarding sender and receiver.
In recent years, there has been a rise in the value of
cryptocurrency, this is because of the hype of the said currency.
For example, Gold is valuable because it is limited. Just like
Gold, there are close to about 18 million Bitcoins that have been
extracted and only a total of 21 million Bitcoins can be extracted.
Therefore, the main reason behind such an increase in value is
because of the limited availability and supply. Just like the
Theory of Law of Supply and Demand, when there is a high demand for
a commodity but supply is less than automatically the price of that
commodity increases it is similar in the case of Cryptocurrency.
Warren Buffet in 2019 stated that Cryptocurrency is not just a
virtual currency but a gambling instrument as people do not buy it
as an alternative to real money but due to its increasing
value.
Every Cryptocurrency is protected by a private key, this private
key is similar to a UPI pin. If someone forgets their UPI pin they
can go to the bank but in the case of Cryptocurrency it is not the
same, if the owner of the cryptocurrency misplaces its private key
then no one can use it. There are close to about 25% of
cryptocurrencies that have been lost till now.
Cryptocurrency Mining
In mining usually, precious metal is searched, found and then
mined. In Crypto Mining, it is a virtual process in which miners
solve a complicated mathematical equation and if the equation is
solved then they are rewarded with Bitcoins and this is how
Cryptocurrency is generated.
STATUS OF CRYPTOCURRENCY IN INDIA: ARE CRYPTOCURRENCIES
REGULATED IN INDIA?
At present, RBI is in a process of consultation with different
ministries so that they introduce a framework that can ban
Cryptocurrency trading in India. In 2018, RBI issued a notice to
all the financial institutes so that they don’t use or support
any form of digital currency as a lot of frauds were being executed
mainly after demonetization in 2016. After this various
Cryptocurrency Exchanges which are present in India filed a case to
remove such a ban. After which in March 2020, Supreme Court removed
the ban imposed by RBI along with all the restrictions which were
present in India relating to Cryptocurrency have been removed. But
Cryptocurrency is still unregulated in India.
In the Decision of IMAI v. RBI1, the Supreme Court
observed that
(i) while cryptocurrency hobbyists do not have the locus
standi to challenge the 2018 Circular under Article 19(1)(g)
of the Constitution, cryptocurrency traders and persons running
cryptocurrency exchanges do have the locus standi;
(ii) cryptocurrency users and traders can access avenues other
than cryptocurrency exchanges, but persons running cryptocurrency
exchanges do not have any other means of sustenance; and
(iii) the RBI by denying access to banking and payments channels
has effectively shut down cryptocurrency exchanges, even though
there is no evidence that cryptocurrency exchanges have had any
adverse impact on entities regulated by the RBI.
INTERNATIONAL REGULATIONS RELATING CRYPTOCURRENCY
On 22nd and 23rd February 2020, The G20 finance ministers and
central bank governors had their first meeting in Saudi Arabia.
where cryptocurrencies and stablecoins, and issued a statement
urging countries to implement the cryptocurrency standards set by
the Financial Action Task Force were discussed.2 In the
meeting, new reforms and more stabilized ways of governing the
cryptocurrency along with other digital currencies were discussed.
This conference was based on the G20 meeting which was held in
Japan, 2019. Here, the committee also discussed regulations that
will be implied during the Covid-19 as no one knew that it would
grow into a worldwide pandemic.
The G20 summit compromising representatives from 19 countries
and the European Union have prepared for the group to accept
digital payments in the summit held in Japan in October of 2019.
The changes were then expected to begin by G20 members before the
summit which was held in Riyadh, Saudi Arabia in February of
2020.3
According to Kyodo News, the G20 officials enacted the policy
change in response to China’s progress on creating a digital
Yuan and Facebook’s anticipated release of Libra. G20 body in
October 2019, summit published a study on the challenges that
stablecoins pose to the global economy. The G20 finance members of
the world agreed that global stablecoins gave rise to a set of
public policy and regulatory risks.
Fun Fact: The first purchase that was made via
Cryptocurrency was of Two Pizzas amounting to 30 dollars for which
10,000 Bitcoins were used.
CRYPTOCURRENCY DURING PANDEMIC
The coronavirus went from a local problem to a global problem
affecting people all around the globe and everyone is reacting to
it from investors, doctors and even the cryptocurrency. COVID-19
has taken the world by surprise. The pandemic has been fast-moving
with unseen challenges that have destabilized global economies and
changed the way the world operates. However, the pandemic could
perhaps be the catalyst in moving towards a cashless society and
with the nervousness around cryptocurrency easing is now the time
for cryptocurrency to shine as interest in blockchain and
cryptocurrency increases.
- Crypto prices are falling: In February 2020,
US stocks dropped the most in 2 years due to the coronavirus
pandemic. This drop in the US stock market erased all the gains of
2020. Bitcoin faced a similar drop, but Bitcoin fell all the way up
to 7200 dollars to erase its gains this year. Bitcoin co-relates
the Macro Economy. Bitcoin was valued at just over $10,000, it then
dropped to a shocking $4000 on the 13th February 2020. Bitcoin
Cash, Ethereum, XRP also suffered similar fates. - CoronaToken : it is a new crypto and the
makers of this crypto claim that the total supply is based on the
total population of 7.7 billion. These tokens will be eliminated
every 48 hours based on the number of coronavirus victims both
infected and deceased. Furthermore, the developers said that they
are giving 20% of the tokens to the Redcross. - A New Perk: some Crypto enthusiasts are
excited as now people will shift to digital currency from paper
currency to control the spread of viruses.
FACTORS FOR RISE IN PRICE OF EXISTING CRYPTOCURRENCIES
Bitcoin is just 12% shy of it’s previous all-time high of
USD 19.8914 as strong as momentum flows. Cryptocurrency
is presently well supported by market sentiments over the need for
hedging risk against a macro backdrop of unprecedented levels of
fiscal stimulus and low or negative interest rates. Bitcoin halving
is an event where bitcoin miners receive 50% less bitcoin for every
transaction they verify. BTC halving occurs every 210,000 blocks,
which equates to a halving occurring approximately every 4
years5. Since the last halving day on 11th May
20206 the currency has gained tremendous strength as the
supply narrows. Furthermore, the higher acceptance of Bitcoin is
also pulling some strings up with PayPal, the global payment
technology giant recently announcing its intention of allowing
Bitcoin transactions across its platform. Leading to a lot more
demand for Bitcoin, as a result, the annual volatility figure is
spiking. The cryptocurrency continues to climb and is closing in on
the levels not seen since it reached its highest ever mark three
years ago. The chorus is growing for crypto to scale the USD 20k
levels mark.
And, the other reason for such rise in prices is the squeezing
supply- since the last halving day on 11th May 2020, the reward for
mining a block in a blockchain has been reduced by 50 percent to
6.25 bitcoins per block, which would be further reduced to 3.125
per block after 210,000 blocks have been mined.7 Many
industry experts anticipate that with current computation power and
harsh rates, the next halving would fall on 8th May 2024. Besides
this, on 21st October 2020, PayPal disclosed its intention to enter
the cryptocurrency space by allowing its customers to transact in
Bitcoins and various other cryptocurrencies through their PayPal
accounts. Furthermore, the company envisions to enable its 26
million merchants to accept bitcoin as a source of financial
transactions and ownership transfer. To begin with, the global
payment technology giant would enable four currencies on its
platform, namely Litecoin, Bitcoin Cash, Ethereum and Bitcoin.
LAUNCH OF NEW CRYPTOCURRENCY IN 2020
- Uniswap: this coin has been launched in Zebpay
and Wazirx. This crypto allows you to swap ERC 20 tokens (these are
the coins built on the Ethereum network.), it is designed as a
public good. - Facebook’s Libra Cryptocurrency Project:
This currency is launching in January 2021. It is Libra USD which
means 1 Libra USD = 1 US, similarly, many such Libra launches will
be made. Libra Token and Libra Coin, whichever country regulates
these tokens, that country Libra stable coin will be launched after
which that stable coin can be used for cross border transactions.
These stable coins are backed by reserves.
UNCERTAINTY OVER CRYPTOCURRENCY IN INDIA
The Loksabha Bulletin (Indian Parliamentary Bulletins) in its
recent issue, stated that “The Cryptocurrency and Regulation
of Official Digital Currency Bill, 2021” to be introduced with
an object “To create a facilitative framework for the creation
of the official digital currency to be issued by the Reserve Bank
of India. The Bill also seeks to prohibit all private
cryptocurrencies in India, however, it allows for certain
exceptions to promote the underlying technology of cryptocurrency
and its uses.”.8
Cryptocurrencies have been receiving attention in India over the
recent months as many Indians see them as an alternative to buying
gold. Trade volumes at different crypto exchanges in the nation
have been rising. Furthermore, ahead of the union budget, #IndiaWantsCrypto was a trending hashtag on
Twitter. But speculations estimated that the union budget would ban
cryptocurrencies did cause jitters in the market. “Last week
the price of bitcoin had dropped by 8-9%,” said Nischal
Shetty, founder of India’s one of the most popular
cryptocurrency exchanges “WazirX”. “But following
the budget, it has recovered on our exchange.” This is in
contrast to the global scenario where the price of bitcoin surged
on January 29, 2021, after Tesla chief Elon Musk, one of the
richest men in the world, added #Bitcoin to his Twitter bio and said he was a
supporter.9
ANALYSIS
To conclude, Cryptocurrencies can be a boon to society if proper
regulations are laid, as of now, not many countries have proper
regulations relating to Cryptocurrencies. With the Covid-19
pandemic which caused uncertainty all around the world the initial
months of 2020 did suffer a drop in the Cryptocurrency but as
months passed the cryptocurrency picked up a rise in the prices due
to reasons like PayPal enabling Bitcoins as a part of its
transactions and also due to the law of supply and demand and also
mainly because paper currency would cause the spread of the virus
in comparison to the digital currency. As far as International
Regulations are concerned relating crypto, G20 ministers should
take note of this successful model. Regulators should scale-up
their industry engagement and come together and make room in their
digital sandboxes to scale up the crypto and digital assets sector,
a sector that offers great promise for financial services into the
21st century that benefits everyone. If the currency is monitored
correctly this limited currency can be used as a great asset by
countries and big business ventures.
Footnotes
1 Internet And Mobile Association vs Reserve Bank Of
India (https://indiankanoon.org/doc/12397485/
)
2 Global Crypto Industry Wants Regulators To Scale Up
Engagement With Sector (https://www.forbes.com/)
3 G20 Kicks off 2020 Discussion (https://news.bitcoin.com/g20-cryptocurrencies-2020/
)
4 Bitcoin price history 2012-2020 (https://www.statista.com/statistics/326707/bitcoin-price-index/)
5 Bitcoin Halving 2020- CMC Markets- (https://www.cmcmarkets.com/en/learn-cryptocurrencies/bitcoin-halving
)
6 Bitcoin Halving by Luke Conway- Investopedia, May 11,
2020- (https://www.investopedia.com/bitcoin-halving-4843769
)
7 Ibid. (5)
8 Lok Sabha Bulletin, dated January 29, 2021 (http://loksabhadocs.nic.in/bull2mk/2021/29012021.pdf)
9 Why India’s cryptocurrency ecosystem is glad it was
ignored in the country’s budget, Quartz India, February 02,
2021 (https://qz.com/india/1967426/indias-bitcoin-cryptocurrency-investors-relieved-after-budget/)
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