Future of Cryptocurrency in the Indian Economy
Cryptocurrencies have evolved as a strong asset class while making strides towards becoming a designated ‘currency’
Cryptocurrencies and blockchain technology have the potential to disrupt human life as we know it. Similar to how it was difficult to envisage the effect and potential of smartphones before the advent of the iPhone in 2007, the possibilities around cryptocurrencies are only limited by human imagination and adoption currently.
Blockchain technology is a decentralised approach to creating trust and value. That is, an intermediary is not required for a transaction between two individuals. Think of the post-pandemic world today – we do multiple transactions with individuals/companies digitally. Using our bank account/credit card/e-wallet provider, we pay for broadband, video, education, food, transport, and even groceries. The intermediary acts as a trustable party to ensure the transaction is validated on both sides and thus takes a proportionate cut of the value transacted.
This share can range from 1 to 5 per cent depending on the transaction. Also, some intermediaries limit operations to certain hours of the day with an inability to support microtransactions on a global scale.
Bitcoin and other cryptocurrencies, the first actual use case of blockchain technology, were invented to circumvent the need for this intermediary. By authenticating a transaction on a public ledger and by ensuring that it works throughout the day with zero downtime, they provide cost savings as well as authenticity to the global userbase.
Fast forward to 2021, cryptocurrencies has evolved as a strong asset class while making giant strides towards becoming a designated ‘currency’. Globally, more than 100 million users have exposure to cryptocurrencies. El Salvador became the first country to officially recognize Bitcoin as legal tender recently. Many other Central/South American countries are evaluating a similar approach.
What does this mean for India?
Monetary Systems and Asset Class
As an asset class, cryptocurrencies offer a level global playing field to invest and grow wealth, irrespective of country of origin. They are evolving and, naturally, have faced resistance from central monetary authorities including RBI in India. Banks haven’t been forthcoming in supporting the ecosystem and its start-ups. However, a large Indian investor base (10 million) has adopted cryptocurrencies through legal exchanges that support the conversion of the Indian Rupee to crypto-based digital currencies.
This growing adoption has ensured a thoughtful but impactful approach from the government and the RBI recently. The Indian government is considering regulating the cryptocurrency space to protect and serve the interests of investors. RBI has announced plans to consider a Central Bank Digital Currency (CBDC) based on blockchain technology in India. This has the potential to promote financial inclusion among 190 million unbanked Indians.
Innovation and Trade
As a regulated industry, blockchain-based companies can freely operate in India and showcase leadership to the world. Future innovations in the cryptocurrency/blockchain space can come from India and it can also be a new avenue for job creation and economic growth. Multiple blockchain projects with global implications are currently being developed in-house.
India’s Polygon (Matic Network) is building a protocol and framework to connect blockchain-based networks and is considered as a strong contender for overcoming network issues faced by Ethereum. It is also among the top 20 cryptocurrencies by market capitalisation today.
Other such companies will sprout and given our massive talent base, can do spectacularly on a global forum. A locally developed DeFi (decentralized finance) solution that can complement the traditional financial system globally, will allow for financial inclusion as well as present an alternative. Start-ups and upcoming firms get listed in the Indian Stock Exchanges.
Concerning global trade, India’s dependence on the dollar can eventually be softened if global trade moves to a decentralized cryptocurrency. The country and its export-oriented companies can have better predictability for trade and payments.
The future of cryptocurrencies in India is rich with possibilities. With the right set of regulations and incentives, Cryptocurrencies and blockchain technology have the potential to fuel India’s goal of becoming aatmanirbhar.
The author is CEO & Co-founder, Giottus Cryptocurrency Exchange
DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.