The Drive to the Cryptoland

Updated: Apr 2, 2021

Fun Fact: If you’re a pizza lover, you deserve to know that the first legal transaction of Bitcoin involved the purchase of a pizza!! The cryptocurrency ecosystem brings with it different kinds of toppings which are liked by some and disliked by the others We’re here to tell you more about it so you can get a better flavour of the same and decide if Cryptocurrency is really the techno tour de force! Happy Reading!!

WHY DO BANKS OPPOSE CRYPTOCURRENCIES FIERCELY? As the years pass, innovations in the financial sector like new payment technologies have emerged to meet the growing and diversified demands of people. This evolution has come a long way from just coins and notes in circulation to introduction of cards and online payment platforms to the present much talked about digital currency, popularly known as the cryptocurrency. Blockchain, as you may know, is a disruptive technology that allows electronic transactions without a middleman. Cryptocurrency leverages this technology to create a faster, cheaper, and safer mode of payment. It not only makes transactions smoother but also cuts down on the processing fees that we pay to manage our funds and the possibility of loss and fraud.

Even though we have heard about the growing popularity of this highly touted decentralized technology that helps people with secure transactions and storing money, it is still banned in India. And we wanted to know just the same, why do banks oppose cryptocurrency so fiercely!

(Source: coinmarketcap.com)

Among the many reasons that banks and the government state, the following seem to stand out: Size of the Cryptocurrency Market

With a market that is expected to grow at a CAGR of 6.8% to a market cap that is bigger than even the largest banks of the world, cryptocurrency raises concerns about how the operations of the banks may be affected. Thus, the focus is on how to slow down the growth rate of cryptocurrency. Attempts are made in this direction by banks even on an individual level. For example, they ban people from using credit cards while purchasing cryptocurrency.

The Overwhelming Increase of Cryptocurrency Value


Quite like the stock market, cryptocurrency’s value has been growing at a good rate now, with the scope of further growth being immense. The growing acceptability of cryptocurrency as a means of payment in many countries, the bullish perspective of the investors towards it and the increasing number of publicly-traded companies purchasing Bitcoin in the West, are generating trust and confidence in people, causing an upsurge in its value. Decentralization of Cryptocurrency Another major concern for bankers revolves around the much heated debate if technology would lead to a loss of employment for people. As the trend shifts towards more people using cryptocurrency, reliance on banks will reduce, resulting in a decline in their revenues. The fear of being replaced by this new technology makes them apprehensive. It is safe to say that they see cryptocurrencies as a competitor and not as a contributor. They are yet to make peace with the fact that the transition might open new possibilities for them. The Compliance Cost incurred

Introducing a new system that requires superior technology and management of the same isn’t the easiest thing to do. It is commonly known that cryptocurrency investors often deposit large amounts, making it difficult for authorities to investigate and determine the source and authenticity of these funds. It becomes challenging to discern whether the amount is earned by legal means, whether proper tax compliance is done, etc. This leads to an increase in efforts in terms of time and resources, which the banks are not ready to incur. The Bankers cannot track the source of funds if they are sent via a Cryptocurrency Wallet to the Bank Account

Understanding the authenticity of funds has been an important practice, however, in the case of cryptocurrencies, it is impossible to investigate the source of funds. Hence, one cannot determine whether the accounts are clean or not. This is why bankers think of cryptocurrencies as a risky proposition because any transfers made can constitute unfair gains that the bank is unable to discern. Bitcoin claims that “It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen.” This lack of a centralized bank and de-regulation is why bankers are afraid of the cryptocurrency world. At least in the current situation, banks are an indispensable part of the economic system when it comes to the creation of credit and stabilisation of the economy during peaks and troughs. They provide access to liquidity during periods of crisis and control crimes like laundering, tax evasion and other frauds. Bitcoin, or any other cryptocurrency for that matter, seeks to replace and kill the banking system with time. Cryptocurrency is a new technological intervention

Generally speaking, new technological headways take some time to penetrate the dynamics of the industry. In his book, “Innovation and Its Enemies: Why People Resist New Technologies,” Calestous Juma talks about how modern technology has been frequently rejected for the past 600 years, and why the resistance trend persists to this day. Let’s take an example, we all have witnessed the ride-sharing service soar and soon spread to cities around the world. However, the government's response has remained only sluggish and reactionary. This is because they think of these interventions as slow and a linear way. Technology accelerates so fast that only nimble-footed management would be able to regulate it. The same is the case with Blockchain that forms the core of Cryptocurrencies. Moreover, it is also a complex network and many bankers do not understand how it works. The Employment Angle

As already established, digital currencies have the potential to render the entire banking system irrelevant and obsolete. Hence, with the arrival of such technologies where human intervention is not required in most facets of the transaction process, millions of jobs could be jeopardized. In the banking & finance industry, bank tellers alone account for more than 50,000 jobs. They are going to be the first in line to be wiped out, given that their task of processing financial transactions is automated by Blockchain. Bankers believe that these disruptive innovations need to be reconciled with the global economy and employment considerations.

The Pump & Dump Scheme

Pump and dump is a system responsible for increasing stock prices based on false, misleading, or overstated declarations. Cryptocurrencies are known to be extremely volatile, and hence, there lay inherent risks to adversely influence the financial market. Banks do not want to accept such an anonymous currency that is complex for a large part of the Indian demographic to understand. Bankers believe that with these levels of obscurity, these currencies can pave way for embezzlers, which in turn can de-stabilize the financial system and create a ripple effect in the form of market-to-market contagion. CENTRAL BANK DIGITAL CURRENCY (CBDC) - PUFFERY OR THE ACTUAL FUTURE Firstly, what is CBDC? “CBDC is a digital form of currency that is backed by a Central Bank and through that has a legal tender status. This definition means it is recognized by law as a means to settle debts or meet financial obligations such as tax payments.”


(Source: BIS Report, 2020)

While third-party currencies are being opposed by banks, CBDCs have garnered national recognition. They are featured in central bank correspondence and public search interest. A couple of central banks have already issued CBDCs, these include those of Ecuador and Tunisia. China, Canada, the USA, Sweden, the Bahamas, France, the Philippines, Japan, Turkey, and Switzerland are some of the other countries that are testing the CBDC for public circulation. In India, The Parliament has proposed to introduce the “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.” The bill seeks to “ban trading and investments in private crypto-currencies such as Bitcoin and provide the RBI with the legal powers to develop CBDC.”

The issues with third-party currencies can now be eliminated with CDBCs

  • Simple currency tracking: By implementing CBDC in a country, the central bank will be able to keep track of the exact location of each currency unit, which wasn’t possible with 3rd party currencies.

  • Income tax: Tax avoidance and evasion would be nearly non-existent, since it is impossible to practice strategies such as offshore banks and unreported jobs to conceal financial operations from the central bank.

  • Curbing Crime: Illegal acts such as terror finance, money laundering, and so on can be quickly spotted and terminated.

  • Volatility: CBDCs will be pegged to assets such as gold and thereby will not witness any volatility as in the case of cryptocurrencies. CBDCs will also aid in distracting customers from engaging in the increasingly volatile cryptos.

(Source: BIS Report, 2020)

Summing up, India stands to gain from the introduction of CBDCs. The Digital Rupee is going to enable banks to get upto speed to the changing digital landscape, cashless economy, achieve financial inclusion, as well as retain their power to exert monetary policies and ensure financial stability. Moreover, the Digital Rupee has the potential to develop supremacy of the Digital Rupee in the face of trade with strategic partners, thereby reducing India’s reliance on the dollar. A BITCOIN FOR YOUR THOUGHTS!! From the banker’s lens, cryptocurrencies are going to remain a very big threat because of their secretive functioning and no-control mechanism. However, it’s the investors’ haven today, and it is important to remain agile in the changing business milieu. Hence, banks should consider ways to expand their digital currency horizons. CBDCs are one such way, as discussed. Provided CBDC's novelty and the potential for "clean-slate" thinking on the nature and provision of money, the initiative seems to align with the economic situation and the user’s priorities. Moreover, events such as the Covid-19 pandemic illustrate the importance of access to different methods of payment, and the need for every form of payment to be both inclusive and robust, just as cash is, against a wide spectrum of threats. While the number of obstacles ahead is challenging to foresee, Central Banks will continue to take a long-term view of the position of CBDCs and consider them carefully in several hypothetical potential situations. Alvin Toffler is credited with saying: “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn.”

We hope we drove you to the cryptoland!

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