In his 110 minute long address to the Parliament, one quote made by Indian Finance Minister Arun Jaitley on February 1st, during the Union Budget session made international headlines. A quote powerful enough to send markets tumbling.

Arun Jaitley, Finance Minister

‘The government does not recognize cryptocurrency as legal tender or coin and will take all measures to eliminate the use of these cryptoassets in financing illegitimate activities or as part of the payments system’

India’s Finance Minister had signalled that his government was in no mood to warm up to Bitcoins, the digital cryptocurrency that is widely used across the world.

But why is a government, that has vehemently pushed for digital transactions, so against Bitcoins? Well this question can be answered only when one completely understands the mechanism behind Bitcoins.

What is Bitcoin?

Bitcoins are a type of cryptocurrency which uses blockchain (public ledger) to record all transactions. All transactions are open (that is presence of digital footprint), yet deposits can be made anonymously. In simple words, secure deposits can be made without the need to make any disclosure of one’s identity. Second noteworthy feature is the absence of a third-party payment – an absence of a regulatory body such as the Government or the RBI, making the Bitcoin extremely vulnerable to external market factors. This explains why Bitcoins surged & dropped to extreme heights (and lows) in a span of 4 months.

Why is India vary?

Eliminating black money was one of the pre-poll promises of the ruling NDA government. Demonetization of 500& 1000 rupee note was done to ensure the same.

However, because Bitcoin encourages transparency, it can only lead to a transfer of black money into safe Bitcoin ‘haven’. Plus, anonymous transactions can also not be traced.

Secondly, Bitcoins are unregulated. It doesn’t fall under the purview of FEMA, RBI or SEBI. This is a major cause of concern as it can lead to private players or people with vested interests to control markets. A volatile trading day could wipe off millions and this is a prospect India can’t afford.

So should we avoid Bitcoins?

Absolutely not, in fact, several media reports suggest RBI is mulling over the creation of ‘Desi Bitcoin’. The monetary regulatory body seeks to incorporate blockchain technology however instead of anonymous, accountable transactions will be encouraged.

This will not only boost Digital India but will also secure online and monetary transactions across the nation.