Virtual currencies are similar to many disruptive innovations that we have incorporated into our lives, writes Akhil Prasad at Boeing
The recent decision by the Supreme Court not to pass an injunction against the Reserve Bank of India’s (RBI) prohibition on virtual currency transactions doesn’t come as a shock. There was a huge outcry when Uber was setting up its taxi aggregator model a few years ago. When Amazon, Flipkart and Snapdeal first set up online stores, there were concerns that the companies would not be able to get customers, and when they did, quite robustly, the fear was that retail stores would suffer, and “mom and pop” stores would die. And yet all co-exist in the shopping ecosystem.
Investment in real estate were considered better than mutual funds and stocks, even though the former was unregulated until the recent arrival of the Real Estate (Regulation and Development) Act, 2016, while the latter has been regulated for many years. The concerns about safety and calls for regulation continue for autonomous cars and planes, which handle ever greater navigational functions that reduce the need for human input. Yet corporations like Boeing and Tesla, as well as Google, Apple and Microsoft continue to invest in autonomous mobility, which belongs to the grey side of the spectrum and introduces new innovations and disruptions.
What I have read and understood about virtual currencies, in very simplistic terms, gives me an impression that virtual currency is a great idea. The currency system has seen a complete transformation from being completely unregulated during the barter system era, to today’s currency system, which is regulated by various central banks. Despite tight controls and regulations, the current currency system has also enabled the creation of black money, cross-border hawala transactions (unregulated transfers of funds through intermediaries), the finance of illegal trade, non-transparent political funding, and many other maladies that all of us wish were eradicated.
There is a huge international push to digitalize currency transactions in several countries, as well as discourage the use of paper money. Hacking and frauds continue to be commonplace despite tight regulations and controls. India’s banknote demonetization drive of 2016 saw a dramatic shift towards using online platforms for basic services, like taking an autorickshaw or a taxi, or for ordering groceries. There are so many convenient services now that I often forget to ask my wife for hard currency!
If we have adapted, and continue to adapt, to many disruptive transformations that we may or may not admit have improved our lives, why do we fear virtual currencies? I am not a technologist, but I believe in those who have given us tech-enabled and high-quality products and services. I have no doubt that virtual currency will be one area that, apart from facilitating transactions, will provide an alternative mode of investment to make life secure for future generations. Commercial organizations are quicker to adapt and analyse futuristic ideas. So, it’s no wonder that Amazon, Fidelity and many others accept and encourage the use of virtual currencies.
These currencies utilize highly sophisticated and technologically savvy private blockchain or cryptography systems, which provide control over participant behaviour, and transaction verification processes through secure and private connections via an intranet or the internet, resulting in quick-time transactions. The security concerns and risks facing virtual currencies are mainly related to the use of the currencies, not the blockchain network.
Users can minimize risks from virtual currencies by adopting measures such as using dedicated computers/devices for dealing in virtual currencies, with updated firewalls and antivirus software, and strong passwords and encryption, all of which is not rocket science. Virtual currencies are as unsafe as an unattended wallet or an online bank account.
Awareness about virtual currencies and their pros and cons is limited, although the media seem to be more vocal about highlighting demerits, for instance, about the vicious valuation cycle that some virtual currencies have been through. But stock markets go through that all the time. How does it make a difference whether someone has lost money investing in the stock market versus a virtual currency? Do regulations prevent stock market crashes, or banks that are “too big to fail” from collapsing, or compensate those who lost money?
A knee-jerk reaction by a regulator to ban a great idea only shows that it’s done due to someone’s unfounded fear. In the new age of digital and technological offerings, the creator and regulator should walk hand-in-hand, and support and nurture new ideas, rather than create hurdles.
AKHIL PRASAD is India country counsel and company secretary at Boeing.