One Virtual Currency To Rule Them All
Cryptocurrencies by design are based on a superfluous underlying asset that can be best described as time and computing spent solving a complex mathematical problem. Essentially this means that there is a closed group of individuals that has agreed that similar to the gold rushes of the 19th and early 20th centuries, they will ‘mine’ a commodity and those succeeding will be rewarded disproportionately. With one key difference though. The gold rushes of yore yielded a physical commodity that was highly valuable and of a value agreed globally. This has been the key criticism for and remains the key risk of cryptocurrency.
That being said, the concept in itself is quite logical. Instead of cash, currency would be a virtually encrypted entity with one paradigm-shifting feature — the same currency would be valid globally. So no longer would one be required to exchange currency across geographies while trading or traveling. Instead, goods and services would be priced in the same currency. Albeit the price of goods and services would vary across geographies based on the cost of manufacturing, transporting, selling and also by taxation structures. Essentially, the difference in cost of living and the point of origin of the good or service would determine how much it would cost in a particular cryptocurrency.
The concept is not alien to us. Most people today are paid virtually — we never see cash, not even receive a cheque — for their goods and services. We merely see a change in our account balances. And while we do withdraw cash for certain expenses, most of our expenses happen either through online transfers, credit and debit cards, or through virtual wallets. However, in all of these transactions there is one underlying feature that is lacking in cryptocurrency — our money is guaranteed by the issuing institution, which is usually the central bank of the country. That guarantee comes along with a value attached to the currency, determined by a multitude of factors, but always backed by underlying assets held by the government and the central bank of the issuing country.
That is where the cryptocurrency fails. And that is why the RBI ban on cryptocurrency makes 100 per cent sense.
However, on account of the fact that we are already dealing with virtual payments and that the fungibility of currency is already being facilitated by payment platforms such as Mastercard, Visa, Amex, et al, (by virtue of consumers being able to utilise their credit and debit cards globally), the only question one may be asked on a multi-currency terminal is the choice of currency to pay in. But when ultimately one receives the card bill in their home currency that virtualisation and fungibility is complete.
Cryptocurrency, which is secured by blockchain, when issued by a central bank on the basis of its position, would have guarantee equivalent to hard currency in circulation today. And while the positioning of such a currency when seen from an absolute perspective would make it seem like a novelty, it is in reality no different from the cashless payments that we make today — whether at home or across borders.
My assessment is fairly simple: central banks, RBI included, will soon issue cryptocurrency, and at some stage, these will unite into an integrated global payments system where differential pricing of goods and services in different geographies would serve as a virtual proxy for exchange rates, but the end user would be agnostic to this. For the end user, an era of a single virtual global currency is on the horizon.
