Amidst central government’s plans to ban cryptocurrencies, there arises a really compelling reason on why India needs its own digital “rupee”
India is a country where cash circulation amounts to whopping 5 lac crore rupees. With technologies like UPI and the tech boom, digital payments are on a stark rise📈.
The total global market cap in the world for cryptocurrencies is more than 2 trillion USD (It doubled in the last two months alone), two-thirds of India’s annual GDP 🤯 this tells a lot! And our government is planning to ban the use of cryptocurrencies. Dogecoin, which had started out as a joke, crossed 50 billion USD.
India should launch its own cryptocurrency and back it with other cypto
Like we had gold, that backed other currencies, we should launch our own coin and back it with cryptocurrencies like Bitcoin, Ethereum, etc.
A cryptocurrency (or “crypto”) is a kind of digital currency that can be used to buy goods and services or be traded with other currencies. It uses a public ledger (generally) with strong encryption and verification techniques to secure online transactions.
All the “transactions” are prepared as a block and are distributed across various computers (if decentralised ) and everyone who is part of that chain has a copy of all the previous transactions.
Crypto can massively help in cross border payments as it is Peer-to-peer and does not require any centralised authority to verify that. Instead, all the members of the chain can verify the transactions and are rewarded with a piece of the pie for their work — called mining. As of now, most popular cryptocurrencies are based on this fundamental principle.
- It is not feasible to ban as anyone can very easily hold massive amounts of wealth in crypto [pseudo-anonymously] all secured with a long passphrase. If banned, it will give rise to these activities in the black market.
- A lot of startups, researchers, founders would leave India if they are restricted
- We will lose our stance in world politics. As other countries will be launching their own such currencies. China is already in advanced stages and the UK just announced that they areconsidering launching their ownCentral Bank Digital Currency (CBDC).
The recently introduced bill proposes a ban of cryptocurrencies like Bitcoin in favour of a digital rupee on the grounds of protecting India’s national security.
Instead of banning decentralized cryptocurrencies, we should use them to develop our own currency which is backed by decentralised solutions.
Cryptocurrencies, especially the most popular ones have a reputation of being volatile and have become famous for such headlines. That is true considering it is a new thing, but if we look back, it is volatile with respect to USD. If we compare it to other securities and assets it might not seem that weird. v/s stock market
Also, if we have a cryptocurrency that equals 1 unit of fiat currency then this volatility will essentially vanish.
Advantages of a digital rupee
Fight Fraud and Corruption
A lot of Government expense is done in the field of interests and subsidy along with massive frauds in PMAY MGNREGA and other rural schemes. Along with that, it is an undeniable fact that farmer subsidies are also not used properly.
With help of cryptocurrencies, we can “program” it. For example, some money is given to farmer to be used for seeds, fertilizers etc., this might not be used for its intended cause, giving rise to fraudulent practices. If we can cryptographically make it so that the coin issued to the farmer is valid only if used for the purchase of agro-products | a lot of fraud can be avoided.
These “smart contracts” are faster, cheaper, and more efficient than traditional contracts and auditing methods. All of these contracts can be fulfilled and authorized automatically.
Can prevent social deplatformation
The president of the United States was deplatformed from Twitter, Facebook and also YouTube (partially). Even though we have restricted several Chinese services like TikTok; US still has the power to easily block social media access to our leaders and important organizations especially in case of emergency. If we have a decentralized platform that runs on say Ethereum network then it is not possible for a single entity to deplatform a user, without the majority saying so.
It also paves the path for several startups to take advantage and create such neutral platforms.
Prevent financial deplatforming
Not only is internet communication at risk but so are financial systems. SWIFT and other global banking frameworks or even Google Pay are all US-controlled institutions and with US oversight it is possible for it to stop grants and trade going through SWIFT. Enforcing the need for a digital rupee based on other decentralized cryptos.
decentralization defeats deplatforming.
— balajis.com
Trust
If all government purchases and transactions including donations are made to be publicly visible, it can inculcate trust in the citizens and also counter massive corruption. Transparency is key for a stable and trusted government. Although most politicians might not favour this as it can backfire themselves only.
But it is definitely a way to give trust in government funds and efforts like PMCares .
Accounting
With every transaction and rupee being traceable and easily indexable, accounting can become super easy and transparent.
Why back it with crypto
Let us consider we go in a big fat war. Our currency becomes devalued with infrastructure dying out. Hyper-inflation is already ruining lives. How can you solve it?
Using an economic platform that is above governments
RBI can easily freeze accounts and transfer and print money but crypto like Bitcoin and Ethereum are decentralized non-nationalized global currencies.
Like countries hold massive reserves of gold to counter inflation and devaluation of the currency. Holding the next rare resource (Bitcoin) is like a failsafe for our economy — a hedge against inflation.
There won’t be more than 21 million Bitcoin in existence and difficulty for mining will always increase, making it impossible to reach that full circulation. Because BTC is limited (and also the first one) it acts like gold for cryptocurrencies.
India has recently started to follow its Non- Aligned Movement (NAM) policy. With trade wars going on between the two largest economies it provides India with an opportunity to jump in and become the financial trade centre to facilitate future global trades in the likes of Singapore, Switzerland, etc.
To power the next FinTech boom we need to create a strong foundation.
If we start accepting payments with cryptocurrencies then outsourcing would increase one of the biggest industries in India as the barrier to entry will get lower. It will also direct massive foreign direct investments into Indian businesses and Tech sector.
How it might operate
I would suggest this cryptocurrency be issued by the Reserve Bank of India firstly by simply converting the traditional rupee into this kind of one. List it on Foreign Currency Exchange. Using this does give the state full oversight of the transactions but it should be pseudo-anonymous which means it should be allowed to not directly link your identity if you don’t want to.
All the transactions should be stored on a semi-public ledger and be made public when necessary. These blocks should be then authorized by the Ethereum network or using the omnilayer API like Tether USD or something similar.
What is happening in China?
Since last October, China has started to issue small amounts of digital Yuan and has debut testing in smaller towns and cities. It also has tried various experiments which only allow citizens to buy goods from retail shops close to their homes, which had massive success . This gives a boost to the local economy. It is also a little concerning as it might try to push its digital Yuan aggressively to fight back US’s dominance in global trade.
Sadly, privacy is an issue; for the State, it is good as most citizens do not care and it can collect all the information it wants. Chinese Government wants to develop a massive surveillance network for its citizens. This can be used to crack down on minorities. With such privacy violations, such centralized tracked payment network doesn’t seem to worry its citizens.
China just released a framework on how rules for such digital currencies should be made.
Conclusion
Here we are freezing accounts if there is any bitcoin activity detected whereas other big Payments providers are allowing the trade of Cryptocurrency on their platforms.
We need a Central Bank Digital Currency that is backed by other such currencies. With a stable and trusted new financial sector, it will provide India opportunities to be the next London / Hongkong.
Thank you to Krish for the idea and fact-checking and Aryan for editing the article.
Originally published at https://www.vimarsh.info on April 21, 2021.
