Kumar encourages India to have a more accepting approach to cryptocurrencies
ECE and CSL Associate Professor Rakesh Kumar penned an opinion piece for The Statesman, noting how the combined value of cryptocurrencies recently broke past half a trillion dollars which is higher than the GDP of several top-20 world economies. Kumar is affiliated with the Coordinated Science Lab (CSL) and CS @ ILLINOIS.
The rapid rise of cryptocurrency has governments scrambling to assemble a plan to counter unexpected implications. As Kumar puts it, "Cryptocurrencies challenge governmental control on the economy... Such knowledge allows governments to provide fiscal stability, target policies, increase the tax base, track crime, and prevent leakage. Cryptocurrencies allow anonymous, peer-to-peer financial transactions, thereby loosening governmental monitoring and control."
Furthermore, the volatility of cryptocurrency has governments worried. Since cryptocurrencies are not fiat currencies, they are more susceptible to being excessively volatile to the extent in which there are social and political costs such as eroding public trust in the government and investments.
Consequently, many countries have banned cryptocurrencies or significantly curbed their promotion. However, there are some countries like India that may benefit from being more accepting of cryptocurrencies for three main reasons. Cryptocurrency aligns with the government's goal of a less-cash society, heavy-handed methods such as bans are ineffective for cryptocurrencies, and cryptocurrency transactions may represent a large potential source of revenue.
Considering both the positives and negatives of cryptocurrency, Kumar brings up the question: How does one balance the genuine fear of excessive volatility and loss in oversight and control against the potential benefits in terms of revenue, innovation, and digitization?
Kumar says that the "key could be a careful combination of education about the volatility and non-insurance risks of cryptocurrencies, and careful and selective regulation to encourage structure, disclosure and tracking."
In particular, cryptocurrency should be recognized as an official money service business and be required to keep records, enforce registrations, and share information with governmental agencies to help with oversight and control. Fraud, collusion, and cyber attacks should be detected and prevented and "self-reporting" must be required for both individuals and institutions involved with cryptocurrencies. Banks and financial institutions should not hold or trade cryptocurrencies or provide loans to cryptocurrency exchanges.
"Cryptocurrencies have show extraordinary resilience during their short history and are likely here to stay—a pragmatic approach to promote and regulate them can yield significant dividends," said Kumar.
Read more from Kumar's article at The Statesman website.