In our highly digitized world where nearly every transaction is virtual, it is not surprising that cryptocurrency has become a powerful force that could change the very definition of money. Rightly called a "techno tour de force" by Bill Gates, this new form of digital currency could revolutionize financial transactions, investments, payments and what it means to have wealth!
Personally, I am very interested in the highly democratized nature of this new currency. It¡¯s not created, governed or distributed by singular, regulatory entities but by people sans geographic boundaries, connected by the worldwide web and using a mathematical framework or codes.?
Reuters
Let me explain...
India is one of the most cash-intensive economies in the world but the deployment of the Unified Payment Interface (UPI) in early 2016 enabled users to transmit money with an Aadhar ID and mobile number. This set the stage for banks and private players to set up digital wallets. In fact, the nation¡¯s growing affinity for online transactions led India¡¯s leading Bitcoin exchange, Zebpay, to cross turnover of Rs. 100 crores within 10 months of operation in April 2016.
Then came demonetization in November 2016. A cash short India started relying more heavily on digital wallets like Paytm and online payment systems to deal with the crisis. Seventeen percent of Indians owned a smartphone in 2016 and their tryst with digital wallets in the face of demonetization meant more people started becoming comfortable with digital currency.?
ALSO READ:?Should You Buy Bitcoin In India? We Demystify All The Confusion Around Cryptocurrency Right Now
Reuters
Leading Indian Bitcoin startups also witnessed a surge of new users, triggering significant investor interest in expanding the usage of cryptocurrency in India. In September 2017, Blockchain, the largest digital asset platform in the world announced a partnership with Indian Bitcoin exchange Unocoin to seamlessly fund wallets, free the settlement delays, safeguard against untrustworthy service providers, and institute opaque identity verification procedures.?
At last count, India was home to one million Bitcoin users, who conducted transactions of 1,000-2,000 coins, or approximately Rs. 10-20 crore every day! After the American dollar and the Japanese Yen, the rupee-denominated Bitcoin is believed to generate the third-largest volume. One Bitcoin as of early February this year was equal to about 390944 INR.
While it¡¯s disrupting financial systems, cryptocurrency is also the most ¡°volatile asset in the global marketplace¡±. As of February 2, this year, $100 billion was wiped off the global cryptocurrency market in 24 hours.
Among other factors, this volatility results from global movements in the cryptocurrency market. For example, China's abundance of cheap energy and hardware, essential for 'mining', made it the ideal destination for mining ¨C until China recently cracked down on Bitcoin exchanges, trading platforms, and fundraising using cryptocurrency (Initial Coin Offerings). This led to a fall in valuations, and traders migrated to Japan. Japan saw a Bitcoin boom as the nation started accepting payments in stores using cryptocurrencies, and three of its largest banks backed the nation's largest Bitcoin exchange. But when Japan's Mt. Gox, once the world's largest Bitcoin exchange, collapsed in 2014 due to a hacker attack, Indians trading at the exchange lost crores of rupees.
AFP
This high volatility also makes cryptocurrency an attractive investment proposition ¨C it¡¯s almost like investing in stocks. However, since cryptocurrency transcends laws concerning currency, foreign exchange, and security transactions ¨C it is being heavily scrutinized by regulatory bodies world over including in India.
In India, cryptocurrency lies in a legal grey area and is unregulated. The Reserve Bank of India (RBI) considers cryptocurrency a violation of India's current forex norms due to its unregulated nature and lack of compliance with any central banking mechanisms. But in the recent budget while the government categorically ruled out any of the existing Cryptocurrencies as legal coins, it recognized blockchain as a ¡°distributed ledger system¡± and said that they will explore the use of this technology proactively for ushering in digital economy. In fact, RBI has asked experts to review fiat version of cryptocurrency, a digital currency alternative to the rupee. If India does go ahead with its own cryptocurrency (tentatively called ¡®Lakshmi¡¯), it would put us at par with China, Russia, and Estonia who are all considering their own cryptocurrencies.
As India mulls cryptocurrency, it¡¯s critical to know how to keep this new form of money safe.? The simplest way of keeping the coins safe is to treat it as physical gold. It is advisable not to rely on a single wallet to store all the currency. Instead, diversify the holdings and put only tiny amounts in every wallet, as cyber assets are targets for hackers. For large volumes of currency, it makes sense to use a hard drive that is not connected to the web.?
Reuters
Like with all financial transactions - do not share any confidential information pertaining to cryptocurrency with anyone. Since cryptocurrency thrives on the paradigm that no one individual or entity controls it, it¡¯s expected that miners will comply with the highest standards of cybersecurity, and constantly update their safety protocols to ward off a breach.?
Bitcoins are being increasingly used in India for making purchases of apps, buying vouchers and for top-ups of talk time and bills. As the usage increases there will arise a need to legalize cryptocurrency to support security. Many Indian Bitcoin startups are implementing multiple security checks, including a Permanent Account Number (PAN) or Aadhaar number to enhance security.?
With three-digit gains that top digital currencies (Bitcoin and Ethereum) experienced this year, it is likely that cryptocurrency is here to stay and thrive. Global institutional investors, including the likes of Goldman Sachs, have taken notice after their stakeholders became increasingly curious of this unique asset class. Former RBI Governor Raghuram Rajan has said that that the RBI could use digital currencies to move India towards a cashless society.?
BCCL
As international borders blur when it comes to financial transactions and we move towards a highly digitized world, it¡¯s not too far flung to think that this new wave of FinTech revolution will bring sweeping changes in how we define and use money. It¡¯s worth investing your time to educate yourself about this new future and be prepared.
About the author:?Swetang Vin is Corporate Vice President & Regional CFO at?AMD