Bitcoin is a digital currency that allows peer-to-peer transactions. The transactions are recorded in an electronic register that is not under the control of any Central Banks or Governments.
A person can sign up with an online service and start transacting with other people in no time, just through their computer. Bitcoins are created through “mining,” done by solving complex algorithms. There is a limit on the number of bitcoins that can be created; at one time, 21 million will be mined worldwide. These bitcoins will be around for many years as no central authority has control over them.
Since its inception in 2009, bitcoin is becoming popular worldwide and challenging the existing payment system. However, most central banks in India do not appreciate the concept of bitcoin. If you want to invest your money in bitcoin, then you can visit now the official platform and start your trading journey.
Seven reasons why Bitcoin is the worst nightmare for Indian Central Banks
1. Prevents Inflation:
Bitcoin’s limited supply of 21 million offers a significant check on Inflation when compared to fiat currencies which can be printed in larger denominations by the central banks at any time they choose. However, this means that Bitcoin has a deflationary bias, thus making it an unlikely candidate for a currency replacement anywhere with a Central Bank.
2. Prevents Currency Manipulation:
Bitcoin’s independence from any particular nation or central bank will make it unattractive to those who have relied on currency manipulation as a tactic. China, for example, is suspected of artificially holding up the price of Bitcoin and other cryptocurrencies to purchase more at cheaper rates.
3. Classification as Commodity:
According to the recent report published in Economic Times, Bitcoin can be classified as a commodity by the Indian Central Bank.
4. No Transaction Fees:
Transaction fees are paid for transactions done using Bitcoin cryptocurrency due to its decentralized nature and hence free from transaction costs which are not possible in case of any other mode of payments like wire transfer, etc.
5. Suspicious Nature:
The absence of any transaction information and the presence of many suspicious transactions makes Bitcoin usage quite questionable.
6. Money Laundering:
It will be difficult for the regulators to track money laundering cases using Bitcoin. It is impossible to ascertain identities in most cases where Bitcoins are used for buying drugs. A digital trail can track the transactions, but it will only link the Bitcoins back to the person using them, which does not happen in most cases.
7. Use for Terrorist Activities:
Anti-national elements and terrorists are also using Bitcoin to fund their evil activities through unregulated mediums like Hawala, Hundi, etc. These are pretty popular in India due to the lack of regulation or control by Indian Regulators.
Is Bitcoin ever going to benefit Indian Central Banks?
Bitcoins may be a valuable method for Indian Central Banks to maintain control over the money supply and velocity if they choose to accept it.
Bitcoin could also help the Indian central banks be more transparent in their operations if they choose. After all, transparency is good for trust and confidence in an institution that issues currency.
They can also reduce their costs of printing and securing valuable physical currency.
Five ways Bitcoin has helped Indian Central Banks:
1. Tracking:
Bitcoin has provided a new and exciting way for Indian Central Banks to track money flows, where they previously had no visibility. This will enable them to target compliance resources in the most significant risk areas more effectively.
2. Targeting:
Bitcoin also provides Indian Central Banks with an opportunity to capture transaction fees. Previously, the payment networks might have been captured by private companies charging fees from customers and merchants.
3. Transparency:
Bitcoin provides information about flows in the economy that are not currently available, meaning Indian Central Banks can make better decisions about running monetary policy. In a true sense, cryptocurrency brings us closer to an ideal state of ‘perfect information.’
Conclusion
Bitcoin has a lot of advantages over the existing mode of transactions.
However, Indian central banks will have to consider all pros and cons before embracing this emerging technology. It will be a significant change from the present system to which they are used. Moreover, it may make them lose control over the money supply and currency manipulation if appropriate steps are not taken.
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