Nothing is more powerful than an idea whose time has come. With the total market capitalisation of the cryptocurrency universe at more than $500 billion, many are wondering whether these digital currencies represent that big idea. Non-believers in cryptocurrencies have a standard answer: Blockchain is the big idea. Digital currencies are a bubble. It is important to highlight the importance of decentralisation in the world of blockchain and how cryptocurrencies are a result of that since that is what incentivised the coders.
While we welcome and appreciate the government using blockchain technology, it is important to note if one ends up having a server inside a government department doing the work, then it won’t be very different than existing centralised databases. A private blockchain is only as good as the users allowed to edit it. There is no inherent security like the proof of work concept in Bitcoin. As of today, the sheer size and volumes of the cryptocurrency market make it a force to reckon with. One cannot think of the underlying blockchain technology in isolation of cryptocurrency transactions without which we would have an empty ledger. Regulators and policymakers must now lay out a clear roadmap on how they intend to regulate cryptocurrencies. In order to put a regulatory framework in place, regulators must accept that owning and trading cryptocurrencies is legal and that they envisage these digital currencies being an integral part of the global financial system going forward.
While Finance Minister Arun Jaitley in his budget speech did express his bias against cryptocurrencies, we believe there is a need for healthy dialogue around this issue. Even if Indian authorities want to stick by their categorisation of cryptocurrencies as illegitimate and illegal, sound arguments must be provided to back why they hold their view. Below are two issues where we believe all stakeholders must have an informed debate on.
Anonymity: One of the main concerns voiced by governments and critics of Bitcoin and other cryptocurrencies is the anonymity of cryptocurrency transactions. It is a common belief that Bitcoin transactions are impossible to track and can aid terrorists, criminals, tax evaders, etc., in avoiding detection by government agencies. This, however, is just a myth. While cryptocurrencies vary in their level of anonymity, some of the biggest ones — Bitcoin, Ethereum, Ripple, etc., are just pseudo-anonymous. What this means is that while every wallet has a crypted alpha-numeric address instead of a real person’s identity — and every transaction seems to be between unidentified entities — once any part of the chain is linked to a real world identity, all the transactions ever been made by that entity can easily be tracked since the whole blockchain is in the public domain.
Security: Many investors, and consequently governments, get spooked (and rightly so) by cyber-attacks targeting cryptocurrency wallets and exchanges and some have even deemed the technology unsafe. The infamous Mt.Gox breach of 2014 and the more recent hacking of Japanese cryptocurrency exchange CoinCheck, where hackers made away with close to US$500 million worth of cryptocurrency, have only affirmed these fears. Online forums are also rife with users claiming to have lost their private keys and ultimately access to their wallets with no way to claim the deposits back. However, is this the first time that criminals have targeted a store of value?
