The Supreme Court on Wednesday allowed trading in cryptocurrencies. In April 2018, the Reserve Bank of India (RBI) had issued a circular which barred banks and financial services from dealing in cryptocurrency.

Most of us don’t know what cryptocurrency is? Here is the answer to this question

In simple terms, cryptocurrency is a type of digital or virtual money. It serves as ordinary money, such as dollars, pounds, euros, yen, etc. But it has no physical counterparts — banknotes or coins that can be carried around, that is, the cryptocurrency exists only in electronic form.

Once the cryptocurrency transaction is completed, it is automatically added to the blockchain and becomes irreversible forever.

A blockchain is a decentralized database consisting of a blockchain in which all transactions of network members are stored. In simple terms, the blockchain is a combination of computers connected, and not to the central server.

Currently, the global market capitalization of cryptocurrencies is around $256 Bn. This figure is about $65 Bn more than what it was at the beginning of the Year 2020. To offer you better clarity, the sum is over $10 Bn more than how much India’s GDP increased between 2017 and 2018.

What Made The Crypto Market Crash In 2018? Are They Safe?

Well, in 2018, cryptocurrencies were trading at hyper-inflated prices as more and more global investors rallied to buy them. This largely involves supply-demand dynamics and is like overvalued stocks in the equity market. To help you understand, there are only a finite number of crypto assets available with any cryptocurrency ledger. For instance, only 21 Mn bitcoins can ever be mined as per the current bitcoin protocols. Now, like any other market (stocks, commodity, currency, etc.), if the demand is higher than the supply, the prices will surge. Similarly, if the supply is higher than the demand, the prices will dwindle.

Technically, cryptocurrencies – which are based on the revolutionary Blockchain technology – are the perfect answer to several global economic challenges. The biggest solution extended by them is that they enable global remittance settlements in real-time. This is without needing an intermediary or third-party players for authentication purposes. They, moreover, are highly secure as they follow a distributed-ledger system (and do not have a single point of failure). They also bring superior transparency to the system which quite opposite of its perceived anonymous nature. This is why many global banks have also started accepting cryptocurrencies as a payment alternative.

In July 2019, the RBI has itself said in the Supreme Court that cryptocurrencies aren’t banned in India and are only ‘ring-fenced’. This ring-fencing has made cryptocurrency trades in India to be processed in a P2P (Person-to-Person) format. For instance, if a person wants to buy cryptocurrency, he or she trades it on a crypto exchange and transfer the money directly into the seller’s account. The cryptocurrency is kept with the crypto exchange which acts as an escrow till the transaction is completed.

Transactions are monitored by central authorities when using digital currency, they can easily mark transactions as suspicious, or even block an account.

Why did RBI raise an issue over cryptocurrency?

The first claim is that cryptocurrency isn’t a currency. It’s a commodity. Think gold and silver. The only difference — cryptos are virtual commodities. So you can’t touch, hold or caress them if you are into that sort of thing.

This distinction is important because the RBI cannot regulate the trade of commodities. It can screw you over if you introduce another currency and try to compete with Rupee (by introducing a blanket ban). But it can’t do much if you are trading gold or silver.

Another reason cited by them is the anonymity of the transactions and, therefore, the difficulty in tracking the source of money.

What’s next?

Now, the ball is in the court of the crypto industry, Parliament and government agencies. So, the industry needs to continue to show that it is responsible and self-regulate. And meanwhile, the government may consider balanced regulations that will protect the interests of consumers

Banks can now deal in cryptocurrency after the Supreme Court quashed the Reserve Bank of India’s (RBI) ban. However, a proposed bill is still pending with the government that could make it difficult for cryptocurrency players to survive in India.

The regulatory uncertainty is probably the biggest concern for the government.