Cryptocurrency - the craze that has taken the tech and trading world by the storm still has a large section of the population, confused and some even concerned. EJ Biz brings to you your one-stop shop for all your need to know about crypto-: The Good, The Bad & The Ugly
Cryptic Crypto - What is it really?
Cryptocurrencies are digital financial assets that are based on blockchain technology. A cryptocurrency is secured by cryptography which makes fraudulent activities like counterfeiting almost impossible. Every transaction done with the cryptocurrency gets recorded permanently, thus bringing complete transparency in financial transactions. However, cryptocurrencies face criticism for a number of reasons, including their use for illegal activities, exchange rate volatility, and vulnerabilities of the infrastructure underlying them. But they also have been praised for their portability, divisibility, inflation resistance, and transparency. Crypto experts have time and again pointed out that there are multiple use cases of cryptocurrencies and that each can't perform as a legal tender. Stablecoins could be looked at as potential cryptocurrencies that can act as legal tender.
How popular is it?
The Indian crypto market grew 641% over the period from July 2020 through June 2021. India has the highest number of crypto owners in the world at 10.07 crore, according to broker discovery and comparison platform BrokerChooser. The U.S. came in a distant second in terms of crypto owners at 2.74 crore, followed by Russia (1.74 crore) and Nigeria (1.30 crore). Comparing it with the conventional equity markets, the number of investors in stocks stood at 8 crore, as per the exchanges. Indians’ investment in cryptocurrencies has increased to over Rs 75,000 crore or $10 billion from $923 million in April last year, according to crypto research and intelligence business CREBACO. As per data reported by Bloomberg transfers worth more than $10 million represented 42% of transactions sent from India-based addresses.
What makes it so popular?
Cryptocurrencies being highly volatile in nature have been grabbing attention from all over the world. Moreover, some of them giving multiple-time returns in a short period have pulled investor attention. In the last five years, the dominant cryptocurrency Bitcoin has rallied 90 times. While a lot of meme cryptos are also on investors' favourite list. Meme token Shiba Inu delivered 15 lakh times of investment in just one year. This means an investment of Rs 10,000 becoming Rs 15,000 crore. If these sorts of returns won't get attention then what will!
Crypto concerns, why the RBI is up in arms?
The Reserve Bank of India says they pose serious threats to the nation’s macroeconomic and financial stability. The twin tower of trouble is the lack of oversight and anonymity which raises the red flags for Issues such as money laundering and terrorism financing issues such as money laundering and terrorism financing.
The environment angle
The growing crypto craze is turning out to be one of the biggest threats to the environment. A University of Cambridge analysis estimated that bitcoin mining consumes 121.36 terawatt hours a year. This is more than all of Argentina consumes, or more than the consumption of Google, Apple, Facebook and Microsoft combined. Bitcoin, which dominates more than 40% of the crypto market, has a carbon footprint comparable to that of Chile, producing 91.58 megatons of CO2 annually, this is as per Digiconomist’s Bitcoin Energy Consumption Index.
What are the other countries doing about it
Cryptocurrency is legal in the United States, but there is no comprehensive regulation to govern crypto activities. For now, bitcoin (BTC) and ether (ETH) are categorized as ‘commodities’ and taxed as ‘property’ by the IRS. EU is one of the initial countries to make cryptocurrency legal but just like the U.S. there is no specific regulation. In June 2021, China banned the mining of cryptocurrencies and it is focusing on promoting it's Digital Yuan as a priority post the ban. India too soon going to introduce its own cryptocurrency or digital rupee.
How is it different than digital currency?
A digital currency or CBDC is issued by the government or the central bank. Unlike cryptocurrencies, whose volatility is widely evident, a digital currency is more stable and backed by the authorities. Cryptocurrencies are decentralised, which may not be the case with the state-issued digital currencies.
Why do we really need crypto? Crypto beyond tokens and trade
Cryptocurrencies are based on blockchain technology which can be used in many ways. It makes financial transactions cheaper and faster along with making them transparent as every transaction done on the blockchain gets recorded. Bitcoin is also considered a store of value as it is a limited resource, just like gold or coal, thus rising in terms of value with time. With the help of cryptos, voting can be done through your mobile devices. It makes authentication work easier and faster as it is decentralised. Any transaction done on the blockchain can be verified at any point of time as it creates a permanent ledger.
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