In The Garb Of Crypto
In recent times, there has been a great euphoria about investing in cryptocurrencies. Let us first try to understand whether a crypto investment means an investment in a currency or an asset. For any instrument to classify as a currency, it must have the following features: One, it is a promissory note wherein the issuer is promising the bearer or the holder a value. Two, it is backed by a sovereign nation and, therefore, there is never a question of any default in executing the promise. Three, the printing of currency in either physical or digital form is always based on some tangible asset, like gold or a basket of goods.
From the above, it’s clear that cryptocurrency can never be a currency.
Can crypto then be considered an asset? An asset is something that has a tangible value. Even if its immediate utility is intangible, an asset should have some tangible benefits. The cryptocurrencies being promoted currently — bitcoin, litecoin, ethereum — are nothing but gaming points. Whenever a discussion on cryptos takes place, promoters talk of blockchain technology. This technology is just a technique to account for transactions and has nothing to do with cryptocurrencies, except that the cryptocurrencies’ digital exchange is being maintained in blockchain format. In other words, the points which are earned through a gaming application are stored and transferred through blockchain technology. However absurd it may seem, even the points earned in a game of ludo can be presented as cryptocurrency if they are stored and sold by blockchain technology by the persons monetising these points. Therefore, cryptocurrencies have absolutely no value and cannot be considered an asset. Mining and solving the nth root of an equation are euphemisms for gaming points.
While working at the CBI and subsequently, the Enforcement Directorate, I had come across frauds like multi-marketing schemes, chit funds or deposit frauds. These schemes were disguised as timeshare schemes, gold and land investments, and promised hefty returns. These pyramid schemes were carried out over a long period to evade the law. Nevertheless, fraud could still be established, the trail of funds could be traced and the perpetrators identified.
Crypto promoters have taken fraud to another level with a little scope of their getting caught — as there is nothing that anyone is promising. One part is the persons or persons releasing the game or the equation from which bitcoins or cryptocurrencies are to be mined, the other is the exchanges through which these points — cryptocurrencies — are traded. These so-called cryptocurrencies have acceptability only as long as they are linked to the normal currency of a country. Unfortunately, millions are falling for this fraud globally. Criminals, particularly drug syndicates, will simply use the garb of crypto to siphon and launder their illegal proceeds.
Hats off to RBI Governor Shaktikanta Das for being the first among the heads of central banks to flag the issue. The alacrity of the government in bringing out a bill to ban and regulate transactions in cryptocurrencies is equally commendable. India is one democracy where both the government and the Opposition join hands on issues of national interest.
The recent aggressive promotion of cryptocurrencies on print and visual media would perhaps prove to be the undoing of their promoters. It is only a matter of time before financial fraud prevention enforcement agencies like the CBI and ED catch up with them. But millions may lose their hard-earned money by then. The advertisements and promotional activities can, in fact, be important evidence linking people with this fraud. Sensing the impending ban and investigation into crypto deals, their backers have already started developing a new jargon — non-fungible tokens or NFTs.
The writer is additional director general of police, Kerala. He is a CA and has worked as SP, CBI and Special Director, ED
