Could Bitcoins Be The Next Step Towards A Digital India?

Posted by Surya in Business and Economy
June 5, 2017

The Indian government has set up a committee to look into ways of regulating the trading of bitcoins and other crypto-currencies in the country.

At present, investing, trading or mining these currencies is not illegal by any law. However, the Reserve Bank of India has warned about the risks associated with digital currencies and states that it does not authorise their usage.

By adopting a regulatory framework, the government will be able to observe the companies that provide a platform to buy/sell bitcoins (like Zebpay and Unocoin), and protect the interests of the consumers, as they learn a new system of monetary exchange.

Not Easy To Regulate Bitcoins

The problem faced by all the governments around the world is that it is virtually impossible to control the use of crypto-currencies. A financial institution such as the central bank cannot dictate the production of bitcoins (they are ‘mined’ by individuals with high-tech computers) and all the transactions are registered on a public ledger that can be potentially accessed by anyone with an internet connection.

Therefore, all the government can do is ensure that the companies, which allow one to buy cryptocurrencies, and the people, who are buying them, are held accountable for their actions. For instance, the companies should not be able to scam the buyers/sellers (as some have been reported to do so in the past). And bitcoins shouldn’t become an outlet for individuals to hoard black money or buy illicit substances (if you would like to purchase bitcoins, you should submit your PAN card and other legal documents – the government should be able to access them if the need arises).

Pros Of Regulation

  • Bitcoin is a technology that is less than a decade old. Most people who want to invest in it, don’t wholly understand it and hence, can be easily conned. A legal system will bring more awareness.
  • The government will be able to bring crypto-currency exchange firms under a stringent legal system.
  • Despite being the ‘safest’ crypto-currency, one-third of the bitcoin trading platforms had been hacked in 2016. The government cannot prevent hacking but it needs to make it clear what happens in case an incident of hacking occurs. Will the bitcoin exchange firms be held accountable and compensate the users? Or will the latter lose all their money and not be able to do anything about it?
  • With proper security measures, crypto-currencies can help in Prime Minister Narendra’s Modi push for a digital economy and more transparency in monetary transactions.

Cons Of Regulation

  • Crypto-currencies are an experiment and nobody knows whether they will work or fail.
  • If the laws and regulations are not stringent enough, bitcoins can be used to launder money, buy drugs, etc, as the exchange of the coins can be made anonymously.
  • At present, the majority of the people trading bitcoins are doing so for speculative purposes only – not to make any payments. And investing in bitcoins is very risky, owing to the lack of technological security and the fluctuating price of the currency. Thus, by regulating it, the government will be arguably encouraging high-stakes gambling.

Image Credit: Zach Copley/ Flickr