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The government should desist from the reported move to bring in a law to ban cryptocurrencies. The move could be motivated by the desire to protect unwary investors from losing their shirts by investing in bitcoin, whose value has soared from $1,000 in 2017 to nearly $48,000 today and, by some projections, will hit $1 million by 2030.
It is far more useful to educate investors about the risk involved in putting their trust and money in an instrument with no intrinsic value, is tough to use for payment outside the dark web, is not a unit of account and whose volatility precludes its use as a store of value.
It is created, ‘mined’, in a decentralised fashion and will hit a finite maximum number of tokens, because of its mining algorithm. It is insecure, if you lose your private key, you lose your lode. The rate at which it exchanges for regular currency is a function of sentiment, not rational economic factors. It hogs electricity and could add to climate change, if used extensively.
Given all this, why should the government not ban it altogether? There are moral as well as practical reasons not to. Grown-up men and women should be free to do what they want with their money, so long as they do not harm others.
That is one meaning of liberty. The practical reason has to do with the interesting possibilities that underlie the blockchain technology that underlies cryptocurrencies. The distributed ledger that is a part of the blockchain has many potential uses of great benefit. Banning cryptocurrencies could well finish off Indians’ ability to derive benefit from that potential. That would be a big loss to the entire world, and not just India.
Low-cost cross-border remittances are a potential use case for the distributed ledger. A specific kind of cryptocurrency that is centrally managed and benchmarked against a basket of regular currencies could well serve to settle international payments, ending the world’s dependence on the dollar for the purpose. That would end US ability to weaponise the dollar to have its way. To ban cryptos is give up on such ambitions.
This piece appeared as an editorial opinion in the print edition of The Economic Times.