There has been a lot of euphoria about investing in cryptocurrencies lately. Let’s first try to understand if a crypto investment means an investment in a currency or an asset. For an instrument to be classified as money, it must have the following characteristics: First, it is a promissory note in which the issuer promises the bearer or holder a value. Second, it is backed by a sovereign nation and therefore there is never any question of failure to deliver on the promise. Third, printing money in physical or digital form is always based on a tangible asset, like gold or a basket of commodities.
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 usefulness is intangible, an asset should have tangible benefits. The currently promoted cryptocurrencies – bitcoin, litecoin, ethereum – are just play points. Whenever a discussion about cryptos takes place, the promoters talk about blockchain technology. This technology is just a technique for accounting transactions and has nothing to do with cryptocurrencies, except that the digital exchange of cryptocurrencies is maintained in blockchain format. In other words, points earned through a gaming application are stored and transferred through blockchain technology. As absurd as it sounds, even points earned in a ludo game can be presented as cryptocurrency if stored and sold through blockchain technology by the people monetizing those points. Therefore, cryptocurrencies have absolutely no value and cannot be considered an asset. Extracting and solving the nth root of an equation are euphemisms for game points.
While working in the CBI and later in the Enforcement Directorate, I had encountered fraud such as multi-marketing schemes, chit funds or deposit fraud. These schemes were disguised as timeshare schemes, gold and land investments, and promised big returns. These pyramid schemes have been conducted over a long period to evade the law. Nevertheless, the fraud could still be established, the trail of the funds could be traced and the perpetrators identified.
Crypto proponents have taken fraud to another level with little leeway to get caught – because there is nothing anyone promises. One part is the people or persons who initiate the game or equation from which the bitcoins or cryptocurrencies are to be mined, the other is the exchanges through which these points – the cryptocurrencies – are traded . These so-called cryptocurrencies are only acceptable as long as they are linked to the normal currency of a country. Unfortunately, millions of people fall victim to this fraud worldwide. Criminals, especially drug syndicates, will simply use the crypto suit to siphon off and launder their illegal proceeds.
Hats off to RBI Governor Shaktikanta Das for being the first among central bank chiefs to flag the issue. Equally commendable is the government’s eagerness to introduce a bill to ban and regulate cryptocurrency transactions. India is a democracy where the government and the opposition join hands on matters of national concern.
The recent aggressive promotion of cryptocurrencies on print and visual media would perhaps prove the downfall of their promoters. It’s only a matter of time before financial fraud agencies like the CBI and ED catch up. But millions of people stand to lose their hard-earned money by then. Advertisements and promotional activities can, in fact, be important evidence linking people to this fraud. Sensing the impending ban and investigation of crypto transactions, their backers have already started developing new jargon – non-fungible tokens or NFTs.
The writer is also the Director General of Kerala Police. He is CA and has worked as SP, CBI and Special Director, ED