Why banning cryptocurrencies would be counter productive.
“I believe that through knowledge and discipline, financial peace is possible for all of us.” — Dave Ramsey
With increased adoption of cryptocurrencies, there has been increasing calls for regulation as well, all over the world. Especially from countries like China, US, UK and now India.
But is regulation or a complete ban, the way forward? Or do we need a more nuanced approach?
What are cyptocurrencies?
Cryptocurrencies or ‘cryptos’ are digital currencies that are based on the blockchain technology.
In simple terms, a blockchain is a distributed public ledger that tracks every transaction and also acts as a validator for the transaction. But it is not just a medium of exchange, it also has other uses like dynamic applications, smart contracts, decentralized finance, etc.
There are different types of cryptos, each one has a particular use — Bitcoin, Stellar, etc are examples of store of value and exchange. Whereas Ethereum, Cardano, etc are types of ecosystem that enable smart contracts and applications built on top of the ecosystem for a vast number of applications in different fields from healthcare, document verification, identity, education, etc. There are other tokens as well, that are based on chains like Ethereum.
There are many reason why it is counter productive to ban cryptocurrencies:
Free, Open and Secure.
Cryptocurrencies are based on open source software. The source code for all of these blockchains and coins is available online to everyone for free. It can be peer reviewed and edited by anyone with the technical knowledge. This also ensures that no malicious code can be edited without our knowledge.
The very fact that these are open source makes it almost impossible to ban. Anyone can make their own cryptocurrency, assuming they know how to.
Every transaction on the blockchain can be tracked. This very fact makes it easier to track malicious attempts. Right from the exchange to the wallet, every address can be tracked. If a particular address is used for illegal activities, it is very easy for law enforcement to track every transaction it is making. While the same transaction done in cash would be untraceable.
Take for example government expenditure. If blockchain transactions are used for government accounts, it would make the whole system more transparent. It would be easier for citizens to track where the taxpayers money is being spend.
Innovative Use of Technology.
Cryptocurrencies and blockchain is being used for developing new applications and financial solutions that are empowering millions already. From document/identity verification, to fast remittance transfer and decentralized finance for the un-banked sections of the society, it is making new strides.
It has the potential to strengthen billions of people with financial decentralization and financial freedom.
Banning cryptocurrencies would require the banning of blockchain as well, which is not practical as it is freely available on the internet.
Over-regulation of new technology without proper understanding can also lead to suppressing innovation.
Why do we need cryptocurrencies?
- Store of value. It is a convenient store of value for a lot of people.
- Mode of exchange. Transactions are very secure, cheap and fast.
- Financial Applications: It can change the way people use money, giving more access to the common people.
- and much more.. like NFTs(Non Fungible Tokens) for artists, creators, etc. Smart Contracts, Dynamic Applications, Decentralized Finance etc.
Challenges.
We cannot ignore the challenges with the concept of cryptocurrencies.
- It is easier for new investors to fall prey to scams and malicious activities due to misinformation and lack of knowledge about it.
- It can be used for illegal activities like corruption, money laundering, drugs etc. But one can argue that fiat currencies are also overwhelmingly being used for illegal activities.
- Trading in cryptocurrencies is highly volatile as it is purely based on demand, supply and sentiment. It is a vulnerable space for newcomers if there is no regulation.
- Even with increased adaption across the world, mass adoption as a mode of exchange is still limited, as of right now.
Way Forward for Crypto.
Even with all the challenges, it offers a new-age solution for a lot of problems we have today, like verification, financial independence, inclusion, remittance transaction, secure authentication etc.
Banning it is not a solution as enforcement of that ban would be impractical and impossible, considering it freely available all over the world, online. Crypto exchange is already a billion dollar industry in India. Millions of Indians are invested in it.
Banning/criminalizing/prohibiting cryptocurrencies would lead to booming underground activities that is more susceptible to illegal activities than it is now. It is better to regulate through already established exchanges and major community projects. Self-regulation would be preferable but some sort of regulation like KYCs/Verification is already being done.
Exchanges have already been doing KYCs and customer verification, even in India. They can be asked to cooperate in case of any fraud or scam. We can also recognize cryptos as an asset class and let people trade, subject to market risks.
Japan has a unique way of preventing frauds, scams and malicious coins entering the market. It only allows tokens/coins verified by their securities commission, for trading online. So does a lot of different countries.
A calibrated regulation would be welcome, that gives cryptocurrencies, the recognition they deserve, as a tool of financial innovation and asset class, while ensuring the space is safe for investors and developers alike.
We should not rush to over-regulate or completely ban something we don’t fully understand. Nor should be go on and make it legal tender without research. We should let the industry in, on consultations along with global organizations. It is inevitable as more and more companies are also investing in it and working alongside it. We cannot ignore it. We must be prudent in our steps.
“vires in numeris”
