A cryptocurrency is a digital or virtual currency that uses cryptography for security. Cryptocurrencies use decentralized technology to let users make secure payments and store money without the need to use their name or go through a bank. They run on a distributed public ledger called blockchain, which is a record of all transactions updated and held by currency holders. The most common cryptocurrencies are Bitcoin, Ethereum, Ripple, and Litecoin.

Facebook has announced a digital currency called Libra that will roll out for use in 2020 and allow the platform’s billions of users across the globe to make financial transactions online.

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Benefits of legalizing the crypto market:

• Proper regulation of these currencies will “promote” a formal tax base, while keeping a tab on their use for illegal activities such as money laundering, terror funding and drug trafficking.
• Trading of bitcoins would be brought under the stock market regulator, Securities and Exchange Board of India (SEBI).
• Bitcoins can be traded on registered exchanges which will promote a formal tax base. Returns from investment in Bitcoins would be taxed.
• Use of bitcoins for illegal activities such as money laundering, terror funding and drug trafficking can be checked.
• If any foreign payment is made through Bitcoins, it would fall under the purview of Foreign Exchange Management Act,
• Cryptocurrencies have gained popularity in the last few years. Currently, they are neither illegal nor legal in many countries including India. The market cap for all crypto-currencies has just crossed $100 billion, with most of the increase coming in the past few months.
• Banning will give a clear message that all related activities are illegal and will disincentivise those interested in taking speculative risks.
• Regulating the currency instead would signal a boost to blockchain technology, encourage the development of a supervision ecosystem (that tracks legal activities and may also assist in tracking illegal activities) and promote a formal tax base.

However, challenges remain:

• The government is wary that regulation will provide legitimacy to “what is currently ambiguous,” and may lead to further rise in its valuation and end up contributing “to the investment bubble”.
• A currency that is not based on any real economic activity, unlike a sovereign currency whose value is based on the relative value of a tradeable basket of goods and services, cannot prima facie inspire much comfort.
• Bitcoin’s value, astronomical even now at about $8,300 but much below January 2018’s stratospheric levels, is based on demand for a fixed supply of Bitcoins in the future it cannot exceed 21 million in number, of which 18 million has already been mined.
• Cryptos are feared not just for their sheer speculative propensities, but also for their capacity to undermine sovereign currencies (the latter is an exaggerated apprehension).
• Virtual currency is being traded anonymously over the Internet and used for a host of anti-national and illegal activities, from terror funding to illicit trade of arms and drugs and so on.
• The online use of this currency, was without any border restrictions or geographical constraints, resulting in danger to the integrity and sovereignty of the nation.
• However, it does not make sense to go overboard and criminalise merely adventurous crypto speculators. There are no official or other data available that point towards misuse of cryptocurrencies for illegal ends

Measures needed:

• Governments the world over have banned cryptocurrencies as a medium of exchange, and India is no exception.
• Yet in India, an estimated 30 lakh Bitcoins are reportedly in circulation. From a value of a little over ?60,000 at the start of 2017, the Bitcoin now commands a value of nearly ?6 lakh, with a global market cap of $10.2 trillion. Cryptos are recognised in the US as an asset class.
• Firms like Paypal, Uber, Visa and Mastercard have all signed up as part of the consortium to control it. Each has invested $10 million.
• Criminalising possession of cryptocurrencies will impact such investments.
• Bankers and investors now consider the cryptocurrency market at par with derivatives. The NYSE plans Bitcoin futures through a platform called Bakkt.

Conclusion:

Underlying the crypto movement is a libertarian belief: Cryptos are an alternative asset to fiat currencies; controlled by none, they cannot be manipulated by governments with vested interests. Legalising the cryptomarket can help beneficiaries emerge from the shadows and make productive investments in an economy witnessing a digital transformation. Crypto conduct calls for regulation, but not outright criminalisation.