THE GIST of Editorial for UPSC Exams : 15 JUNE 2019 (Crypto conundrum (The Hindu))

Crypto conundrum (The Hindu)

Mains Paper 3: Economy
Prelims level: Crypto currencies
Mains level: Regulate digital currencies

Context

• The Centre’s reported plans to criminalise cryptocurrencies 10 years in jail for holding, selling or dealing in cryptocurrencies seem a tad excessive.
• If implemented, it can send wrong signals to investors, geeks, digital entrepreneurs and technologists on India’s understanding of not only cryptocurrencies but also on how we look at blockchain, the ground-breaking technology that powers cryptocurrencies.
• Ever since the elusive Satoshi Nakamoto introduced the complex, digitally-mineable Bitcoin, cryptocurrencies have drawn confused responses from central banks, governments and bankers.

Reasons behind worrying

• 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).
• 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.

Steps needs to be taken by the government

• 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.

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Prelims Questions:

Q.1) Which of the following cannot be subjected to judicial review?
1. The satisfaction of the President in declaring Financial Emergency.
2. The legal protection by the Parliament to any person in the Union services for his acts to restore order in a martial law
enforced area.
3. Any parliamentary law made under Article 33 to abrogate the fundamental rights of the members of the police
forces.

Select the correct answer using the code given below.
(a) 3 only
(b) 2 and 3 only
(c) 2 only
(d) 1, 2 and 3

Ans: B
Mains Questions:
Q.1) What are the steps needed to regulate the digital currencies in India?