Cyptocurrency, a buzz word in the recent times has gained significant prominence since 2009 with the advent of ‘Bitcoins’. As most of us know, bitcoin was conceptualized by a person or a group under the name Satoshi Nakamoto. Following Bitcoin, many other cryptocurrencies have come into the market. These currencies work in an economy parallel to the existing economy which does not revolve around the Government, central banks, regulations etc. Cryptocurrency transactions are effected on block chain using the concept of a distributed ledger. Transactions are made secure using the concept of Hashing. The use of private key and public keys allows the transactions to be discreet.
In the absence of a regulatory body, these cryptocurrencies give a free hand to transact. The transactions are hashed and the private key concept makes the transaction viewable only by the recipient. The transactions are difficult to track. Due to no monitoring or guidelines, there is a concern that these currencies could be used for activities such as money laundering to evade tax, and other kind of frauds. Many countries / Central Banks across the world have either warned or banned the use of cryptocurrency. In the recent union budget 2018 in India, cryptocurrency has been classified as ‘not a legal tender’. But this has not deterred people from transacting in cryptocurrency. Cryptocurrencies have a high market value making them an attractive investment option. With the investor interest cryptocurrencies have enjoyed so far, one wonders if the cryptocurrency market has already reached a saturation level, and if it is advisable to make investments. With the volatile situation of cryptocurrencies, it may turn out to be a risk to invest given that regulations are not uniform across the globe.
Central Banks can look at considering cryptocurrencies as regular currencies and the cryptocurrency transactions as any other digital transaction. Just as multiple different currencies exist across the world with each country having its home currency, cryptocurrencies can exist in parallel to regular currencies. Central Banks can formulate guidelines to bring about regulations for the cryptocurrency market. There are advantages of having co-existing virtual currencies. Some of them are – cost effectiveness due to the complete digitalization, the market value of the cryptocurrencies gets regulated thus protecting the interests of the people. With regulations in place by the Central Banks, fraudulent transactions can be tracked and monitored. The underlying blockchain technology ensures that the transactions are more secure. Ultimately it becomes people’s choice whether to transact in regular currency or in cryptocurrencies. Also, if the cryptocurrency market is regulated, untapped population may invest / transact in cryptocurrencies.
The debate about whether cryptocurrencies are here to stay is on. The future for cryptocurrencies looks uncertain. And with their growing interest and popularity, how Central Banks will handle the volume of cryptocurrency transactions, is also highly unclear. At some point, a uniform and consistent decision on whether to accept or decline cryptocurrencies needs to be made across the globe. Varied stance and disparate policies across the world only serve to cause confusion and make people vulnerable to risk and fraud.