Recently, there has been a great deal of euphoria about investing in cryptocurrencies. First, let’s try to understand if a crypto investment means an investment in a currency or an asset. For an instrument to be classified as currency, it must have the following characteristics: First, it is a promissory note where the issuer promises value to the bearer or bearer. Second, it is backed by a sovereign nation and hence there is never a failure to fulfill the promise. Third, printing currency in physical or digital form is always based on a tangible asset such as gold or a shopping cart.
From the above it is clear that cryptocurrency can never be a currency.
Can crypto then be considered an asset? An asset is something that has tangible value. Even if its immediate benefit is intangible, an asset should have some tangible benefits. The currently promoted cryptocurrencies – bitcoin, litecoin, ethereum – are nothing more than gaming points. Whenever there is a discussion about cryptos, the promoters talk about the blockchain technology. This technology is just a transaction settlement technique and has nothing to do with cryptocurrencies except that the digital exchange of the cryptocurrencies is maintained in the blockchain format. In other words, the points earned through a gaming application are stored and transmitted via blockchain technology. As absurd as it may seem, even the points earned in a Ludo game can be represented as cryptocurrency if stored and sold via blockchain technology by the people monetizing those points. Therefore, cryptocurrencies have absolutely no value and cannot be considered an asset. Digging and solving the nth root of an equation are euphemisms for game points.
While working at the CBI and later the Enforcement Directorate, I had encountered scams such as multi-marketing schemes, chit funds, or deposit scams. Disguised as timeshare programs, gold and land investments, these programs promised hefty returns. These pyramid schemes have been carried out over a long period of time to circumvent the law. Nevertheless, cases of fraud could be detected, traces of money traced and the perpetrators identified.
Crypto promoters have taken the scam to another level with a small margin of getting caught – as there is nothing anyone promises. One part is the people or people publishing the game or equation from which bitcoins or cryptocurrencies are to be mined, the other is the exchanges through which these items – cryptocurrencies – are traded. These so-called cryptocurrencies are only acceptable as long as they are linked to a country’s normal currency. Unfortunately, millions worldwide fall for this scam. Criminals, especially drug syndicates, will simply use the guise of crypto to siphon and launder their illicit proceeds.
Kudos to RBI Governor Shakkanta Das for being the first central bank governor to draw attention to the problem. Equally commendable is the government’s eagerness to bring out a bill to ban and regulate cryptocurrency transactions. India is a democracy in which both the government and the opposition walk hand in hand on issues of national interest.
The recent aggressive promotion of cryptocurrencies in print and visual media might prove to be the undoing of its proponents. It’s only a matter of time before financial fraud prevention law enforcement agencies like the CBI and ED catch up with them. But by then, millions could lose their hard-earned money. The ads and promotional activity can actually be important evidence that connects people to this scam. Anticipating the impending ban and investigation of crypto businesses, their supporters have already started to come up with a new jargon – non-fungible tokens or NFTs.
The author is Additional Director General of Police, Kerala. He is a CA and has worked as SP, CBI and Special Director, ED
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