According to some recent reports that have gained wide currency on the internet (pun intended), the government is reportedly mulling introducing its very own crypto-currency. All of them quote the same Business Standard Report as their source, saying that ‘Lakshmi’ might be the name given to the Indian crypto-currency when launched. 

Even if the unnamed sources in the report are providing legitimate information (and a rather obviously named digital currency is on the cards), the possibility of it becoming reality is still at least years away, for it will require massive work on the part of the Reserve Bank of India (RBI) and also amending the Currency Act. While it makes sense that the government and RBI are proactively thinking in this direction, considering their disdain towards Bitcoin and its peers, no one can deny the ever-increasing importance of crypto-currency in today’s world. It might be a passing fad (or fraud as is the belief of JPMorgan’s CEO Jamie Dimon) but the fact that the value of one bitcoin has touched the highs of $4,000 USD recently (before crashing down) and the total market cap of all crypto currencies is in excess of $117 billion, means you need to sit up and take notice. But what is it that you should know?

What is a crypto-currency?

Investopedia says, “a cryptocurrency is a digital currency that is created and managed through the use of advanced encryption techniques called cryptography”. Presently, Bitcoin is the most well-known currency with a market capitalization of nearly $60 billion. Since the concept of crypto-currency is still in its infancy, with not many examples to study, looking at how Bitcoin became popular is almost a compulsion. Bitcoin came into existence in 2009, although it had been in development for a few years before. Its original founder(s) quit in 2011 for reasons unknown. The digital currency works on peer-to-peer technology and is not managed by a central bank or authority.

Nobody owns the bitcoin network, and it is open to all. Over 1,00,000 businesses now accept bitcoins as payment, including big names like PayPal, Dell and Microsoft. By the virtue of its nature, only about 21 million bitcoins will ever be generated, and they will all be on the network by 2140. Confused? Read about it in detail here.

If no one is issuing or regulating the currency, how is it sustaining?

At the risk of putting things too technically, a recent Telegraph report explains, “Bitcoin works on a public ledger called blockchain, which holds a decentralised record of all transactions that is updated and held by all users of the network. To create bitcoins, users must generate blocks on the network. Each block is created cryptographically by harnessing users' computer power and is then added to the blockchain, letting users earn by keeping the network running.” In simpler words, the users’ active participation keeps the ‘blockchain’ of currency running, and users are rewarded with the currency in return for updating and generating the blocks on the network. Many people have made ‘Bitcoin Mining’ their hobby, passion or obsession to earn as many bitcoins as possible. Sophisticated machines are available online to help novices in this process. People look at bitcoins as an asset, an investment of sort – and many early investors are reportedly millionaires. 

Okay, so what is the problem?

The biggest advantage is also the undoing of bitcoins – its’ foolproof, no-record keeping system is a double-edged sword. Like other problems of owning money that is not on record, a few related to bitcoins are: losing keys to the bitcoin wallet (a man lost), use for illegal activities (especially on deep web), possible collusion of users against the system etc. An example is the recent bifurcation of the original Bitcoin into two concepts, and a third one is on the cards. When you step outside the technical domain, problems of value volatility, tax implications, and acceptability arise. Furthermore, governments and financial institutions often look at bitcoins with suspicion – it is something beyond their control, and truly democratic in a sense. 

What if I was paid my salary in crypto-currency?

While it may seem like a far-fetched idea, but the idea is most definitely out there already. While it is true that most employers who pay in bitcoins, and employees who choose to receive a part of their salary in crypto-currency are a self-selected group – working for bitcoin-related organisations or are extremely passionate about the concept, many are increasingly seeing the multiple benefits of the same.

Imagine not paying any service charges or currency remittance service or forex charges when you travel abroad or send money outside your country. What’s more, your salary in bitcoins will appreciate over time and give you more returns for fiat currency.   

You will probably gain the most by being an early adopter of this new currency, if it becomes the norm tomorrow. And if the Indian government – along with that of Russia, China and Estonia – are considering launching their own, you already know how important they think it will be. However, with all these advantages come substantial risks (which come with investing in any new concept); the way that crypto-currencies exist today are not recognised by most governments (but aren’t illegal either), will make the calculation of your annual taxes a mathematical nightmare (every bitcoin payment you receive or make will be a taxable event, with short and long-term capital gain or loss). 

That doesn’t sound very good; what’s the future for crypto-currencies like?

Nobody knows. They might implode, and die down or might become the order of the day. As they get more popular, they will not be able to evade government scrutiny and regulation – but that is in contradiction to the very essence of crypto-currency. People are known to survive on bitcoins alone, and that just means that an ecosystem of acceptance and generation of crypto-currencies already exists – no matter how small the level. Right now, you shouldn’t be worried as your salary will, in all likelihood, continue to be credited in INR in your regular bank accounts. However, if you are one of the odd 50,000 Bitcoin wallet users in India, and want a part of your (or entire) salary in bitcoin – you will really have to make a case for it to your employer. There are many third-party services that will credit your bitcoin wallet with the equivalent bitcoins, but be sure to check their credibility before disclosing confidential data. 

One thing is for sure, that crypto-currency is here to stay in the near future. If the Indian government is thinking of starting with its own, they must realise the implication and threat of it growing unregulated. It will be interesting to see how the future pans out for crypto-currencies and its users, and how different groups will act and react as crypto-currency gains more acceptance.