Finance Ministry and the RBI have warned investors/buyers of potential risks in dealing with crypto-currencies.
Despite the imminent risks, the advent of crypto-currencies has gifted us with the block-chain technology which may prove worthy.
How is market scenario for crypto-currencies?
A new and seemingly attractive investment area has opened up within the cyber-space with the strong emergence of “Bitcoins”.
Bitcoin is currently the most popular crypto-currency, and its price has shot-up by over 1000% in the past year albeit with wide fluctuations.
The main reason for this volatility is market speculation and the entry of a large number of people lured by the prospect of quick and easy profits.
Significantly, the bullish run of the bitcoin prices has also encouraged investors to seek newer not yet well-established crypto-currencies.
While such cyber investment increased tremendously in India over the past year, most users know almost nothing of the technology involved.
Even the knowhow to verify the genuineness of a currency is lacking, which is of concern as almost 90% of the cyber-currencies are supposedly spurious.
What are the regulatory and monetary aspects?
The use value of crypto-currencies as a medium of exchange and as a store of value is still being explored.
Tech firms such as IBM are developing their own crypto-currency platforms to speed up cross-border transactions in a secure and transparent manner.
But simultaneously, many countries are intensifying regulatory scrutiny of this online market and South Korea is even considering a blanket ban.
Also, an US court recently ordered a popular crypto-currency platform to hand over information related to 14,000 accounts for revenue audit.
These inherently undermine the anonymity and agility that digital currencies promise to offer.
What does the future hold?
Crypto-currencies may or may not emerge as a useful tool, as governments may not want to encourage the proliferation of anonymous transactions.
Nevertheless, better investor awareness on crypto-currencies is badly needed for the present and for future such episodes.
Similarly, regulators also need to differentiate the “block-chain technology” on which crypto-currencies are based from the currency itself.
Block-chains are digital ledgers of financial transactions that are immutable and instantly updated across the world in multiple user domains.
They have the potential to streamline payment mechanisms, make them transparent and hence are worth looking at as aids to ease doing business.
Notably, an inter-ministerial panel has been constituted by the Indian government to take a call on the future course of policies in this domain.
