Role of Cryptocurrency in Promoting India's Digital Economy
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The benefits of cryptocurrencies are many. But the biggest advantage comes from the fact that these currencies, by their nature, are secured and are easy to transact.
Today countries like India are trying to regulate the cash economy and move the country toward digitalization. But while the efforts are noble, the fact is that digitization is now totally dependent on cell-phones. Today, there are around 300 million smartphones in the country and the number will double to 700 million by 2020.
According to the Morgan Stanley report – ‘The Next India- India’s digital leap’, there is scope for visible shifts in economic activity starting in 2018 eventually leading to India being a) the third-largest economy in the world with a GDP of US$6 trillion, b) among the top five equity markets in the world with a market capitalization of US$6.1 trillion and c) the country with the third-largest listed financial services sector in the world with a market-cap of US$1.8 trillion by 2027.
Morgan Stanley also expect India’s consumer sectors to add about US$1.5 trillion to their current market cap of US$500 billion over this period.
Cryptocurrencies as the Big Game Changer
So while we talk of digitization that will be guided by Jan-Dhan accounts, Aadhaar and mobile phone connectivity, the big game changer could be cryptocurrencies. Today, digitization in India is driven through POS machines or internet payments. While the cost of transactions for internet payment is coming down the fact is that there are intermediaries involved in internet payment. These intermediaries which are normally banks act as third parties and add to the cost of the transaction. POS terminals are also costly for most merchants. The number of POS terminals is increasing but still the demand is high but merchants are not showing enough interest.
So can these small merchants use cryptocurrencies at a lower cost and solve the problem of connectivity or digitization? The answer is yes. As long as data gets cheaper on the mobile phone, cryptocurrencies can be used to do transaction even with small merchants.
Here are some of the benefits that cryptocurrencies can offer to digitization:
Cryptocurrencies will be very beneficial in the area of real estate. This is because bitcoin, one of the leading cryptocurrencies, is powered by blockchain. The blockchain is a decentralized ledger that allows users to transact with each other directly and the biggest benefit of a blockchain is that a transaction can never be reversed. Thus the chances of fraud get minimized. In the case of real estate, in most developing countries, land records are in a mess. Tracking these records is not easy. Many times these records are tampered. Once these records go on a blockchain it will not be easy to tamper the records and this could ideally solve a major problem for most Indians who lock their wealth into real estate. Poor people with no land records can be benefited through the use of cryptocurrency.
In the case of an absence of a middle man, the cryptocurrency typically becomes a peer to peer transaction. In such a situation, the contracts can be settled immediately.
Transaction Done at Fraction of a Unit
Cryptocurrencies can be done at a fraction of a unit. Thus even when someone wants to do a transaction for a few rupees or a few dollars, there will not be any additional cost. Typically, banks charge more for smaller transactions and less for larger transactions.
No Theft in Transaction
There can be no identity theft in a cryptocurrency transaction. So while India can go digital on the basis of Jan-dhan and aadhar, there are huge chances of criminals hacking into Aadhar or even the jan-dhan accounts. That won’t be possible in a typical cryptocurrency transaction. The person who wants to send cryptocurrencies is in total control of their transaction as compared to a credit card transaction, where the third party bank is in control of the transaction.
They are Global
Cryptocurrencies are truly global and are not bound by the boundaries of any country. Thus, transactions become very easy. Secondly, there is no third party that can block your account in case the account has been misused. In the case of cryptocurrencies, the owner owns the private key and thus no third party can take away your money, unless you lose the private key.
Cryptocurrencies allow you the ultimate ownership of your own money. Thus while people are worried that digitalization will allow the governments to take control of your bank account, the scope of such a thing happening with cryptocurrencies is limited because the entire operation is decentralized.