Opinion | How cryptocurrencies can rob you of your hard earned money
The Centre on Wednesday confirmed that it would regulate the trade in cryptocurrencies, by prohibiting all private cryptocurrencies in India. A bill will be introduced in the winter session of Parliament beginning November 29 to this effect. The bill is titled “Cryptocurrency And Regulation Of Official Digital Currency Bill, 2021”.
The bill seeks “to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India”. According to a Lok Sabha bulletin, “the bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses”. Sources said, the RBI is examining the feasibility of launching its own digital currency, and is yet to decide on a possible date for its launch.
There was huge selling in the cryptocurrency market in India after the Centre’s decision, with prices of Bitcoins crashing by 17 per cent. A Bitcoin which was being sold at Rs 44 lakh was now being available at Rs 38 lakhs. But prices of other cryptocurrencies like Ehtereum, Tether, Cardano fell sharply.
What is cryptocurrency? ‘Crypto’ literally means secret or concealed. Since it is not in physical form, as currency notes or coins, nobody can see it. It is an encrypted digital file having digital codes, backed by a strong cyber program, prepared with a complicated process. It is almost impossible to decode this process. Codes generated by this cyber program are called currency.
Buyers fix the prices of these ‘coins’, they invest money in those coins, and as the number of buyers increases, the price of coins increase. Those who bought the coins early sell them at a huge profit. If the price crashes, the buyers of these coins suffer. The transactions take place at such a fast pace that a few thousand rupees can give returns worth lakhs within a few minutes. Alternately, coins worth crores can become zilch within a few hours.
To put it in simple words, it is like a big unregulated stock market, where there are no regulators to enforce laws. Where nobody knows who is regulating this market. Nobody knows where the money you invested goes. Everything is virtual.
Technically, cryptocurrency is a collection of binary data which is designed to work as a medium of exchange. Individual coin ownership records are stored in a ledger, which is a computerized database using strong cryptography to secure transaction records. It also controls the creation of additional coins and verifies the transfer of coin ownership.
Once a cryptocurrency is minted or created before it is issued by a single user, it is generally considered as centralized, but when it is implemented with decentralized control, each cryptocurrency works through distributed ledger technology, typically called a ‘blockchain’, that serves as a public transaction database.
The first decentralized cryptocurrency released in the world in 2009 was the Bitcoin. Since then, many other cryptocurrencies like Ethereum, Polkadot, Chainlink, Mooncoin, Shiba Inu, Ripple, Cardano, Stellar, Litecoin, EOS, NEO, NEM, etc. have been created. There are more than 700 cryptocurrencies being bought or sold across the world today, with Bitcoin as the leader. Nine big cryptocurrencies have more than 6,000 digital coins floating in the market. Their prices vary from Rs 3,000 to Rs 40 lakh. That is why cryptocurrency is considered volatile.
During the recently concluded IPL T-20 World Cup held in UAE, you might have noticed numerous ads on TV promoting cryptocurrencies. If you had noticed the fine print in all these ads, it says, trading at your risk. Since the urge to become rich is big, people are ready to take risks and they invest their hard earned money in these crypto coins.
There are several crypto exchanges where the trading in cryptocurrencies takes place. In India, WazirX, CoinDCX, Coinswitch, Kuber and Unocoin are active. These are crypto exchanges where trading in coins takes place. These crypto exchanges deal in cryptocurrencies by charging commission or margins. These exchanges, mind you, are not legal and are not transparent.
When prices of shares rise or fall steeply in stock exchanges, the regulator applies circuit and prevent the shares from rising or falling steeply. But in crypto exchanges, the prices can turn into millions or become zero within minutes. There is no regulator and nobody knows the reasons why the prices of cryptos are rising or falling. There is no guarantor. Since every transaction is encrypted with unbreakable codes, nobody can find out who is the originator/regulator/owner of the crypto exchange.
Who generates these crypto coins? In layman’s language, it is a sophisticated computer programming, using special algorithms, which generates coins. This is called ‘mining’. Once a digital coin is generated, it cannot be copied or duplicated. These coins are coded with tough equations and anybody solving the equation gets a coin as a reward.
A user knows when a coin is traded or sold, but nobody knows who mines or generates these coins. Bitcoin is the world’s oldest cryptocurrency, and each Bitcoin is now worth Rs 40 lakhs. Tesla founder Elon Musk is reported to have invested his money in Bitcoins. But nobody knows who generated the Bitcoin. The market capitalization of Bitcoin today is one trillion dollars. Bitcoins give huge returns compared to property, gold, stocks or mutual funds. The quantum of returns does not follow a set pattern.
El Salvador was the first country to declared Bitcoin as legal tender. Cuba also followed, to bypass US sanctions. Cryptocurrency is not legal in Japan, but it is allowed to be used as ‘asset’. China, which is presently the single largest market for cryptocurrencies, declared all cryptocurrency transactions as illegal in September this year.
There are even ATMs for Bitcoins in several countries. In Bengaluru, an ATM for crypto coins was opened in 2018, but was seized immediately. There are reports of cryptocurrencies being used to hire criminals and terrorists. On Wednesday, Gujarat police disclosed that Bitcoins were used to purchase Rs 4 crore worth narcotics.
Why is this craze for cryptocurrencies? It is the urge to become rich quickly. This urge is fuelled by social media where unverified information is shared about how a person who invested a thousand rupees in cryptocurrency became richer by Rs 28 crore within 24 hours. There was another unverified information about how a person who invested Rs 10,000 in cryptocurrency, became richer by Rs 50 crore within 24 hours.
Since cryptocurrency is not legal tender in India, you cannot even buy a pin with this currency. Yet experts say, more than Rs 40,000 crore has been invested till now in cryptocurrencies in India.
Now that the Centre has decided to regulate trading in cryptocurrencies, investors in such digital currencies can now heave a sigh of relief. Those who were dealing in private cryptocurrencies may run for cover, and could remain untraceable. The positive part is that the RBI may introduce its own digital currency for trading. Those investing in RBI’s digital currency will have to pay taxes. When the bill becomes law, those investing in cryptocurrencies can at least hope that they will not become victims of fraud. The government may provide a window for those who have already invested money in cryptocurrencies to dispose of their investments.
In spite of all these assurances, let me advise all of you: Do not succumb to the urge to become rich. Do not dream of becoming billionaires overnight. Remember how crores of people lost their hard earned money in chit funds and other dubious schemes. At least the chit funds had their offices where people could go and seek their money, and government used to take cheaters to task, but cryptocoins have no offices, no banks, no regulators. They take legal tender from you and in exchange give you images of virtual crypto coins on internet. By paying real currency notes and becoming a victim of virtual currency is not a wise deal. Stay away from greed.
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