/Cryptocurrency’s relevance in India

Cryptocurrency’s relevance in India

Cryptocurrency has been a hot topic recently and is most likely to remain a hot topic in the future, and here’s why.

If you surf through Google to understand the terms ’bitcoin’ or ‘cryptocurrency’ it goes like “Bitcoin is a cryptocurrency,” well then what is a cryptocurrency? Google says, ‘…it is a digital currency…”. Okay, great! But the ability to access, transfer, and transact my funds online, isn’t that pretty much digital currency? Alternatively, Google says that “It is the first decentralized, open-sourced, peer-to-peer network that is powered by its users with no central authority or middlemen using blockchain technology.” Awesome! That’s great, but that still tells us nothing!!

It might seem like a difficult concept to wrap our heads around, but it’s actually easier than what people think. 

So first, let us think about how easy it is to shake another person’s hand, or give them a high-five or interact with them physically. As long as you are within arm’s length from another person it is easy to simply reach out and shake their hand, right?

Now let’s imagine that in order to shake person A’s hand you had to shake person B’s hand, who will then shake person A’s hand on your behalf…that’s crazy, right? But that’s exactly how our current banking system works. You go to a grocery shop, swipe your card for the bill amount and the bank pays your money to the shopkeeper on your behalf, and you end up paying charges to the bank for utilizing your money.

When I said someone else had to shake their hand for you, didn’t you immediately think “Why can’t I do it directly?” That’s exactly how cryptocurrency works. And the best part is you don’t even have to be at arm’s length to do it.

In cryptocurrency, the value of the currency and the means to transfer and store that value lies under a unified system, unlike the conventional currency system.

Remember, at the beginning of the article I referred to the google definition which mentioned something about blockchain technology? Blockchain technology is the primary element that makes cryptocurrency such a unique digital currency in payment networks. 

The best way to understand the term blockchain technology is by separating the words block and chain. Imagine a list of records showing transactions of payment and receipts as they occur, once the maximum amount of data has been recorded, the list of records becomes a block and this is added to a previous block of data linked using a chain.

Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system.
The major advantage is that it is a decentralized system. The maximum coin limit is 21 million for bitcoins after which no new coins will be generated. 

The coins are generated using crypto mining, a process that is used to generate new coins and verify new transactions. Only verified miners can update transactions in the digital ledger so it is their responsibility for securing the network from double-spending. Rewards for these miners are new coins. Miners create new coins by deploying machines to solve a complex mathematical equation, which is then verified by peers. In India, there are no regulations or bans on the use of cryptocurrencies.

The government is likely to treat cryptos as an asset class and not as a currency. This will also give the government an opportunity to get tax returns on cryptocurrency. In the Union Budget 2022, the government of India said that a flat 30% tax will be levied on crypto gains. The Digital rupee, also known as Central Bank Digital Currency (CBDC), is in the pipeline to be launched in the fiscal year 2022-23. It seems beneficial for the global remittance economy. It would effectively reduce the time consumed during global transactions.

Acceptance of the digital currency system by the Indian state is a prudent move considering the pace at which the crypto financial system is expanding itself. Although, it would be a challenge for the state to devise a mechanism that lets cryptocurrency function without losing its essence.

-Rupasri B, Batch 2023