India’s Crypto Report Decrypted. – Ishan Sharma
Crime and Crypto
Cryptocurrencies offer pseudonymity and projects like Zerocoin are trying to make them completely anonymous. Pseudonymity makes it harder to establish the real-life identities of the transacting parties. The case of Silk Road, an online black market involved in illegal drug trade highlighted the enormity of this problem. The company had a turnover of $1.2 billion and most of its transactions were through Bitcoin.
Bitcoins have also become a favourite of ransomware hackers, not only because it offers anonymity, but also because being electronic cash, it’s easy to write software that can automatically demand payment. Ransomware CryptoWall, the most successful attack till date, extorted over $2.2 million through Bitcoin payments. But this is a game of cat and mouse between cybersecurity experts and the hackers, will the ban on cryptocurrencies by the Indian government stop these ransomware attacks?
No Intrinsic Value
According to the report “private cryptocurrencies” are inconsistent with the essential functions of money/currency.
.. private cryptocurrencies lack all the attributes of a currency. There is no fixed nominal value of these private cryptocurrencies i.e. neither act as any store of value nor they are a medium of exchange.
We must look at the term “value” more broadly. The DAO tokens for example could facilitate democratic decision making among the “shareholders” by ensuring that the functional relationship reflect the ownership structure. It was a store of value and much more.
Also, for something to have an intrinsic value, it is not necessary for it to be a “legal tender”. The intrinsic value would depend on the importance that people attach to that thing, and also on the relative abundance of it. What is the intrinsic value of Gold? It is but a piece of rock. Similarly, mining of bitcoins or any cryptocurrency for that matter, is an energy-intensive process. According to studies, one bitcoin transaction takes the same amount of electricity as 19 US households consume in a day, but there is a whole marketplace where one can spend it. It is this ecosystem which reinforces the value of a cryptocurrency.
Central Banks Autonomy
The committee believes that cryptocurrencies could affect the ability of central banks to carry out their mandates.
..cross-border transactions with non-official virtual currencies can violate limits on the inflow and outflow of money, particularly as such transactions happen irreversibly. This compromises an- other important lever of monetary policy.
Former RBI governor Urjit Patel was asked about this in a discussion held at Brookings Institution. In his reply, he rightly pointed out that at this stage, scalability is a big challenge for any cryptocurrency. Transaction time is prohibitively large (a Bitcoin transaction takes minimum 10 minutes) thus limiting the wider use.
The total market capitalisation of all ( 2000+) cryptocurrencies put together is just about $119 million. Therefore it is hard to imagine how cross-border transactions can cause too much of trouble for a country whose current account is fully convertible. Algorithms cannot be a substitute for all that central banks do to make a currency trustworthy, so only those who understand the technology and its risks would take the plunge.
Other Issues
- Price Volatility: Cryptocurrencies as an asset class are still new, therefore it is not easy to predict what factors cause fluctuations. But, one must realise that their volume resembles a small-cap stock, they have not hit the mass market adoption rates yet.
- Environmental Concerns: It is estimated that mining activities are responsible for over 10 million tonnes of carbon dioxide emissions. Research has also shown that crypto mining consumes more energy than mineral mining, to produce an equivalent market value. But, Cryptocurrencies are likely to become increasingly efficient as they continue to evolve and develop. For example proposal of replacing the “proof of work” in Ethereum with a “proof of stake”, could cut energy consumption by 99%.
- Financial Frauds: Phishing activities and Ponzi Schemes like GainBitcoin.
Published at Sun, 28 Jul 2019 01:39:46 +0000
Bitcoin Pic Of The Moment
By btckeychain on 2016-08-21 14:22:08
