​CRYPTO CURRENCIES: A BOON OR A BANE

Aditya Kasiraman1

Introduction

Cryptocurrency is a form of digital money and is transmitted over the internet. Unlike the rest of
the banking system of India, cryptocurrencies are not governed by the Reserve Bank of India and
are protected by complex codes. Although not regulated by the Reserve Bank of India,
cryptocurrencies are authenticated by encryption techniques which are used for generating the
units of currency and the transfer of funds are verified. All this is done independently.

All digital transactions are stored in a digital ledger or in other words, a computerized database
with strong cryptography to secure transaction record entries, in turn they control the digital coin
records, and verify the transfer of coin ownership.23

Strong cryptography is a general term applied to cryptographic systems which are considered
highly resistant to cryptanalysis i.e., to analyse information systems to study their hidden
aspects.4

Medium of Exchange5

Exchange of cryptocurrency is done through the digital medium. Also known as Digital
Currency Exchange (DCE), this business allows customers to trade cryptocurrencies for other
assets including conventional fiat money or other digital currencies.

Since the time the Supreme Court of India lifted the RBI ban, many people have been looking to
buy bitcoins and other forms of cryptocurrencies in India. The high demand has led to a number
of cryptocurrency exchanges to lower their fees as the Indian crypto sector continues to grow.

There has been an exponential increase in the number of people who are now more interested in
bitcoins and other cryptocurrencies as a result of which local crypto exchanges are seeing
increased trade volumes and signups and that too during the nationwide lockdown.

1
​The author is a final year student at Bharati Vidyapeeth (Deemed to be University), Pune
2
​Andy Greenberg (20 April 2011). “Crypto Currency”
3
​Polansek, Tom (2 May 2016). “CME ICE prepare pricing data that could boost bitcoin”
4
​Cryptanalysis/Signals Analysis
5
​Exchanges by Kevin Helms

Electronic copy available at: https://ssrn.com/abstract=3632186

Another reason for people to choose cryptocurrency exchange apart from the lifting of the RBI
ban by the Supreme Court is also the reduced fee structure. The popular demand on social media
has also led to a number of crypto trading platforms to lower their fees. Following are some of
the popular bitcoin and cryptocurrency exchanges in India and the fees that they charge:

Wazirx

It is a popular Indian crypto currency exchange which charges 0.1% when paid through WRX.
The trading platform has lowered their ​USDT fees to make it zero fees for transfer to ​Binance​,
further adding effective maximum users in India now enjoy zero fee ​USDT transfer from Wazirx
to Binance and for other withdrawals, the fee has been lowered to 1.5 ​USDT​.

Zebpay

It has been recently relaunched in India. It used to be one of India’s largest cryptocurrency
exchanges and has announced that the normal 1.5% netbanking fee would apply through to April
10. Moreover it stated that users can trade BTC-USDT, ETH-USDT, XRP-USDT, ETH-BTC &
TUSD-USDT with no trading fees for the month of April.

Other Exchanges

There are some cryptocurrency exchange platforms which are keen on offering competitive fees
to their users. Renowned Indian crypto exchange trading platform Coindcx levies 0.0005 BTC
for withdrawals. The platform has been competitive; maintaining the best price as compared to
other competitors and didn’t have to bring the fees down.
Unocoin, another popular cryptocurrency exchange and one of the oldest in India, levies a fee of
0.7% to buy or sell bitcoin. Users also have the option of upgrading to gold membership and
subsequently on upgradation, the fee drops to 0.5%. Some other popular cryptocurrency
exchanges in India include Cashaa, Pocketbits, Giottus and Bitbns.

Another option for Indian bitcoin users is to use a peer-to-peer network to buy and sell bitcoins
directly from sellers in INR. Localbitcoins and Paxful provide such peer-to-peer marketplaces.
Presently, India has no direct cryptocurrency regulation but the government is devising a
regulatory framework for cryptocurrency with the central bank.

Electronic copy available at: https://ssrn.com/abstract=3632186

Latest Trends6

The latest shift in cryptocurrency in 2020 will lead to major developments in the digital asset
market next year. Though 2020 will not bring down the crypto market, it will ensure that the
developments this year will bring major changes to the digital asset and its integration into the
future of the financial sector.
According to industry trends, following are the five most notable shifts in the cryptocurrency
market through 2020 that will likely shape the digital asset market moving forward:

The Halvening

The most visible event that will take place in 2020 will be the bitcoin halving in the month of
May which will reduce its value in the digital ledger by half i.e., dropping from 12.5 to 6.25
BTC. Such an event has taken place twice in the past and each of those events saw interesting
price actions. The objective of halving the bitcoin is to stabilize its supply and meet its demands
by the users. After this, bitcoins may become rare and more profitable than gold but it will still
need to decide whether its scarcity would be the only factor in deciding its value.

The Feds Step Up

Government scrutiny is a large missing piece of the puzzle. The year 2019 revealed a growing
awareness that cryptocurrency and technology in general are becoming less a component of the
society and more of the core element of it. As a result, the IRS has firmed up on its position to
start reporting cryptocurrency transactions for the coming tax season.

This will ensure that more attention is given to the cryptocurrency industry by local and national
governments, enabling the biggest and most controversial tech companies to get in on the
cryptocurrency game.

Although there are encouraging signs with regards to the current legislation, ongoing
experiments can have two opposite effects for the larger cryptocurrency market. On the other
hand, China has amplified regulations for cryptocurrency trading meaning increased turmoil for
digital assets.

6
​The Five Biggest Trends In Cryptocurrency For 2020 - Benzinga

Electronic copy available at: https://ssrn.com/abstract=3632186

The Market Consolidates

The year 2018 was pretty stagnant as far as the cryptocurrency market was concerned as the
price of bitcoin fell but despite this flattening the number of cryptocurrencies in the market
surged to more than 2300 in 2019 according to latest reports from CoinMarketCap.

Unfortunately, fewer than a third of coins are traded at more than $100,000 of volume in a day
and more than a third are valued at less than a tenth of a penny. This means that even though
there are more coins in the cryptocurrency market now than ever before, the total amount of
capital has still remained static throughout 2019.

While a potential growth in cryptocurrency interest from mainstream finance might contribute to
a subsequent increase of capital, regulatory burdens and increased transparency among the larger
players will root out those trying to make a quick coin. In any case, the market has reached a
saturation point and it is unlikely that the number of available coins will grow through 2020.

Enter Libra

Libra, the asset-backed stablecoin that Facebook announced earlier this year won’t be available
till the summer of 2020 and will have to clear the necessary regulatory hurdles. There are still a
lot of uncertainties about this new stablecoin but still has the backing of the likes of Uber,
Vodafone, Coinbase, etc. On the flipside, these uncertainties forced other interested parties like
MasterCard, eBay and PayPal Holdings to completely bow out of the cryptocurrency exchange.
Although there are some uncertainties surrounding Libra, one certainty attached to it is that it
will have a potential user base of almost 170 million just in the United States. Another advantage
that Libra has is the omnipresence of Facebook which will mean that users of this social
networking site many of whom might have previously never touched cryptocurrency, might all
of a sudden be paying their Uber drivers with the stuff. Depending on the massive government
scrutiny, Libra might well mark the point at which cryptocurrency goes mainstream and set a
precedent for other tech and finance companies to follow.

Crypto and Fintech Hook Up

The comprehensive theme of the above mentioned trends is influencing the growth of
cryptocurrency and is becoming mainstream. This means that cryptocurrencies are finding actual
use cases and not just hypothetical ones. Also with the introduction of libra, the problem isn’t
explaining the reasons behind why cryptocurrency will be valuable and necessary rather making
it valuable and necessary now which is basically a do or die situation.

Electronic copy available at: https://ssrn.com/abstract=3632186

There are obvious questions about how transactions will be implemented across diverse ledgers
and also about the regulation of anonymized transactions. This will come only through the
strengthening of the digital industry and the interoperability between wallets and ledgers. Most
of these questions can be answered by whoever tries first and the fintech companies are the ones
most equipped to deal with such transactions and answer such questions.
This sine qua non of innovation has been an apparent trend in the cryptocurrency market. Libra
itself is filled up with members from multiple fintech companies. In the meantime, there are
fintech unicorns like Plaid and Chime who have reached their valuations mainly from
investments by companies in the financial services industry who are curious about digital assets,
but are petrified by the uncertainty that surrounds them.
The point is, 2020 is going to be a put up or shut up moment for the cryptocurrency market
meaning either coins start to prove their merit or else they will slowly start to disappear.

Statistics in the usage of cryptocurrency7

Bitcoin, which was created in 2009 is the first decentralized cryptocurrency and the most
expensive virtual currency in the world. Examples of other popular cryptocurrencies are Bitcoin
Cash, Ethereum, Dash, Mixin, Litecoin, Zcash, Bitcoin SV and Monero. In the year 2019,
Ethereum was the cryptocurrency used in the most transactions daily.

Every cryptocurrency that uses decentralized control works through Blockchain. Blockchain is a
public transaction database which performs the role of a distributed ledger. The size of Bitcoin
Blockchain augments every year and its value grew to around 242 gigabytes as of the third
quarter of 2019.

The prices of cryptocurrencies wobble frequently and are largely dependent on market
conditions. For example, Bitcoin experienced an increase from about 371 USD in January 2016
to over 13,000 by December 2017. During this period, the market capitalization of Bitcoin
witnessed an exponential growth.

This led to cryptocurrencies offering high returns and attracted huge returns among investors.
For example, Coinbase, one of the leading cryptocurrency exchanges in the U.S., its user base
increased from 0.4 million in January 2017 to 5.6 million by June 2018.

However, the popularity of cryptocurrencies grew to such an extent that governments and
banking regulators decided to intervene and warned that bitcoin could face a situation of an

7
Cryptocurrencies - Statistics & Facts by M.Szmigiera

Electronic copy available at: https://ssrn.com/abstract=3632186

economic bubble. Few governments went as far as prohibiting the trading of cryptocurrencies
due to market unpredictability and lack of market control.

This market unpredictability and lack of market control is caused due to centralization of power
in the hands of a few or in a particular geographical area. In other words, this is the uncertainty
affecting the cryptocurrency industry which drives out potential investors.

Legality of Cryptocurrencies In India

In India cryptocurrencies are not legal tender and though exchanges are legal, the Indian
Government has made it very difficult for them to operate. Since there is an uncertainty
regarding the market unpredictability surrounding cryptocurrencies, there is also lack of clarity
over the tax statutes governing them. The Chairman of the Central Board of Direct Taxation has
said that anyone who makes profits on Bitcoin will be liable to pay tax on them. This view has
been supported by other income tax department sources as well who have stated that
cryptocurrency profits must be treated as a capital gain.

It is also to be noted that cryptocurrency exchange regulations in India have become increasingly
harsh. The Reserve Bank of India banned banks and other financial institutions from conducting
cryptocurrency exchange transactions but this ban was lifted by the Supreme Court recently in
the case of ​Cryptocurrency Vs RBI8. In this case, the three judge bench comprising Rohinton
Fali Nariman, Aniruddha Bose and V. Ramasubramanian brought much needed relief to the
Indian cryptocurrency players.

The judgement which is 180 pages long took references from over 50 cases across the world
thereby clearing the uncertainty surrounding cryptocurrencies and their legality in India. This
judgement has also set a precedent across many other countries in the world, particularly the
developing countries.

Elaborating on the reasons for its judgement, the court stated that the RBI failed to show any
harm caused to banks and other regulated entities due to virtual trading of cryptocurrency. The
court further mentioned that no defect was pointed out in the functioning of cryptocurrency
exchanges and that the banking system was the lifeline for virtual currency trading.

8
​The Supreme Court Judgement And The Aftermath by Suprita Anupam

Electronic copy available at: https://ssrn.com/abstract=3632186

Economic Effects of Cryptocurrency9

Cryptocurrencies have the potential to enable economic and social growth particularly in the
developing countries by offering easy access to financial services. They have slowly integrated
themselves into the way the traditional financial system works.

Beneficial Rise in Economic Activities

Cryptocurrencies have built up an entire industry for themselves where all the digital coin
exchanges take place throughout the world and are supervised by dedicated institutions. Bitcoin,
one of the most famous forms of cryptocurrencies has allowed many people to develop and
flourish. On the other hand, there are many people who rely on trading in digital currencies as
their source of income. Therefore, the economy is slowly shifting to these needs and
cryptocurrencies have the potential in satisfying this need of the economy.

Great Opportunities for Poorly Banked Countries

More than one third of the world population does not have access to basic banking facilities that
can help people from these countries in case of a personal financial crisis. Due to lack of
adequate facilities, such people then resort to dangerous lending practices. Loans based on such
lending practices often have high interest rates which leads to instability among the people who
requested the loan. This is where cryptocurrencies come in handy because of their volatility and
ease of use.

Nowadays, technology has improved to such an extent that there are apps and programs available
for cryptocurrencies that bring them closer to the wider audience. Another benefit of trading in a
cryptocurrency is its decentralized control that facilitates trading across borders freely. This use
of technology will ensure more and more people are financially well connected, empowered and
enabled.

Low Transaction Costs

The fact that cryptocurrencies are digital currencies and are digitally traded, they don’t need an
actual brick and mortar building to exist and hence the costs associated with their transitioning
are minimal. As a result there are no employee wages, utility bills or rent to be paid, therefore
these savings morph into low transaction fees. Consequently, more and more people are attracted
to trust these new financial tools that allow for the global economy to be more intertwined.

9
​How Cryptocurrencies Can Help Global Economy and Build A Better Future - Finextra

Electronic copy available at: https://ssrn.com/abstract=3632186

Increased Transparency of Transactions

All cryptocurrency transactions are automated and digitized and are tracked through a distributed
ledger, typically a blockchain. This encrypted data greatly diminishes the risk of fraud and
corruption. This is enough justification for developing countries to also start consistently using
the technology provided by cryptocurrencies and boost their own economy and social prospects.
Moreover, citizens can also keep a track of state funds and have a say in their state’s political
climate.

Cryptocurrency Crimes10

Over the years, cryptocurrencies have become subject of intense regulatory scrutiny all over the
world as developers and market participants look to push this asset class into the mainstream.

Last year, losses from cryptocurrency crimes rose to $4.52 billion. In 2019 alone, cryptocurrency
investor losses increased by more than five times, while hacks and thefts fell by 66%.
Losses from last year rose nearly upto 160% from 2018’s total of $1.74 billion.

Bitcoin was launched ten years ago and governments and regulators are still grappling with the
opaqueness and lack of transparency in the cryptocurrency market that has led to massive losses
for investors. As a result, hackers have transmitted funds on the payment networks of almost all
the top ten U.S. retail banks through illicit cryptocurrency money service businesses including
crypto exchanges.

Therefore, even though large corporations are amenable to the idea of cryptocurrencies, such
companies still don’t consider them to be stable and do not wish to hold them as assets for a
longer duration.

Concluding Remarks

As much as cryptocurrencies are useful and financially rewarding in worst case scenarios, it is
their tendency to be unpredictable that drives out interested investors. Various analysts are of the
view that cryptocurrencies can cause an economic bubble because of the lack of control they
have on the market and their inconsistency over their existence in the future.

The root cause for this uncertainty is the independence granted over the operation of these digital
assets. Governments need to recognise the potential that the cryptocurrency industry can have on

10
​Gertrude Chavez-Dreyfuss

Electronic copy available at: https://ssrn.com/abstract=3632186

the mainstream financial market. There has to be a proper legislation that needs to be enacted
along with a competent authority that oversees the regulation of cryptocurrency exchanges and
the trading that takes place through them. This will gain the confidence of investors and they will
have a more positive outlook towards investing in this industry. In turn, such steps will only
boost the financial sectors of already developed countries and go a long way in helping to
improve the economic and social prospects of developing countries.

Therefore, cryptocurrencies if properly regulated are definitely a boon to the global economy and
are here to stay.

Electronic copy available at: https://ssrn.com/abstract=3632186