Will you be surprised if I say that we may not be having banks ten years down the line? Will you be terrified if I say that existence of intermediary institutions like government is in danger in future? Will you be happily confused if I say that you may not have to give a commission to your credit card company? Do you feel that bitcoin is the second name of blockchain? If your answer to all above questions is a yes, then we can peacefully agree that cryptocurrency universe is still at a nascent stage. But wait, let’s not jump to any conclusion without digging deeper into the reality of this virtual world. You may call it cyber currency, virtual currency, payment token or cryptocurrency, one conclusion that can be made slightly comfortably is, it has surely made governments to grapple with their regulations.
First things first, bitcoin is a kind of cryptocurrency which uses the technology of blockchain. It is a technology with immense potential to change the way transactions happen in the world today. There are lot of cryptocurrencies in use. Over 1600 to be precise. And these are being traded on hundreds of exchanges across the world. The total worth of cryptocurrencies in the world in 2017 was more than $500 billion. After few setbacks the market capitalization fell to as low as $128 billion in 2018. But in 2019, it has again gone up to $237 billion. These variations are result of the changing regulations in many countries and increasing confidence in cryptocurrency markets. In 2017 alone, the market cap of cryptocurrencies increased by 3200%. These facts may sound unreal because many of us are unaware about the change digital currencies are creating around the globe. Many studies have shown that over 50% people in United States were not sure if holding cryptocurrency is legal in the country. If this is the situation in one of the most developed countries in the world, one can easily guess the status of knowledge of virtual currencies in countries who are well down the development index. Many of us are aware about bitcoin but are ignorant about Ethereum which is the second largest cryptocurrency by market capitalization. There are many reasons behind this limited knowledge about the cryptocurrency world. One of them being the hesitation by the government and central banks of different countries to adopt and accept the technology.
To understand the current landscape of this market it is important to analyse scenario in few important countries. Starting with the European Union, it defines the cryptocurrency as digital representation of value which is neither issued by central bank nor by the public authority. However, the European union has allowed the transfer or trading of these currencies and has proposed to bring it under the anti-money laundering directive. Germany has qualified digital currencies as unit of account and therefore financial instruments. United Kingdom hasn’t placed any regulations or laws in place for virtual currencies yet. The governor of the central bank of the country has however recognized the need of regulations considering the volatility and risks involved. On the other hand, Russia considers the mining of currencies as entrepreneurial activity and is subject to taxation if the energy consumption limit is exceeded. Initial Coin Offerings are opened only for qualified investors. Canada has also allowed the use of cryptocurrencies for buying and selling of goods and for trading on exchanges. Canadian dollar remains the legal currency of the country. The Reserve Bank of India had banned the trading of cryptocurrencies in the country. Recently, the supreme court of India has overruled the decision. The way forward is still not easy.
Countries which have taken more interest in using the technology and recognized the benefits are Switzerland, Luxembourg, Belarus, Spain and Cayman Islands. The Swiss Canton of Zug wants to establish itself as a hub for cryptocurrencies and fintech start-ups. These countries are focussing more on the potential of the technology rather than the legality of the currency. Countries which have completely banned cryptocurrencies are Bolivia, Cambodia, Ecuador, China etc. Bitcoin is more than ten years old now. The volatility, uncertainty and fear about its validity has forced many countries to ban it. Cryptocurrency is based on the decentralization and immutability principle of blockchain. This can really provide a secure way of doing transactions. E-commerce can be hugely benefited using virtual currencies. The elimination of middlemen in credit cards and other similar industries can be a revolutionary step. However, the situation right now is not very satisfactory.
Just to put things in perspective, the total revenue generated by National Stock Exchange (NSE) per day is close to $4000 million. The current per day revenue of biggest exchange for cryptocurrency is not even $4 million. Cryptocurrency being listed on the NASDAQ or being included in exchange traded fund are things which should not have been a dream. But the reality is, we are far away from creating a world around digital currencies. The counter arguments which are made stating it just as a hype also make us think in opposite direction. It is said that technology in the future will evolve at a much faster pace than it has in last decade. We can just hope for a speedy unfolding of events in crypto world. Till then let’s settle down on what we agreed to in the beginning, we are surely at a nascent stage!!
About the author: Vaibhav Thakare is an MBA student from IIM Lucknow. An engineer who has worked in Strategy and Trade Finance, he has always been interested in learning about new technologies and innovative solutions. Writing is something which excites him because it's about helping someone understand these difficult looking topics in simple words.