Guide to cryptocurrencies for the MSME sector
Guide to cryptocurrencies for the MSME sector
New Delhi, Dec 3 (KNN) In March 2020, the Supreme Court overturned the RBI circular banning cryptocurrencies. Almost after a year in February 2021, RBI had set up a panel to recommend a digital currency by the Central Bank.
The government has now proposed a Cryptocurrency and Official Digital Currency Regulation Bill, 2021, to be introduced in the winter session of parliament. It prohibits mining, holding, selling, issuing, trading, and disposal of cryptocurrency in India.
KNN presents a brief guide on understanding cryptocurrency fundamentals for the MSME industry to understand from their perspective.
Q1.What is cryptocurrency?
Crypto is a digital currency that uses cryptography for the authentication of the transaction recorded in the form of blockchains.
Q2. Who invented cryptocurrency?
Satoshi Nakamoto is the name used by the alleged pseudonymous person (s) who developed the first cryptocurrency called bitcoin.
Q3. How it works?
Cryptocurrency works through a blockchain process. Blockchain is a decentralized technology that is spread over many computers. These computers then act as an auditor who keeps records of cryptocurrency transactions. To understand this, let’s go back to the time when we used a barter system for the exchange of goods and services now for example person A buys 5 kg of rice from person B in exchange for 5 baskets made by him this transaction is now engraved on a block and this block is then cemented in the middle of the village so that everyone is aware that person B now owns these 5 baskets made by person A and person A is now 5 kg of rice in exchange. As this information is shared publicly with the whole village, the possibility of a dispute does not arise. The next day, Person B sells these baskets to one of his friends in the village and again records this transaction on a block and cements it just above the previous block that he had cemented publicly. In this case, everyone in the village can see that person B no longer owns these 5 baskets, so if person c is out of town, person B cannot claim ownership of these baskets and exchange them for someone else.
This type of financial setup might not be an easy way to use, but it allows everyone in the village to keep track of their transactions. In addition, transactions are cemented, that is, they are fixed and cannot be changed when publicly visible. In addition, it is a decentralized system in which no central bank or government is involved in this financial setup. Everything is managed by the community.
Blockchains and cryptocurrency have a number of differences from the example above. Let’s understand blockchain in three simple steps:
First of all As each transaction occurs, it is recorded as a “chunk” of data.
Second Each block is connected to those that precede and follow it.
The third transactions are blocked together in an irreversible chain which is a blockchain.
Q4. How is it different from paper money?
CryptoCurrency is a digital currency that has no physical presence and no central bank as a guarantor.
Q5. How to own a cryptocurrency? There are different methods: –
– 1. Direct purchase through payment gateways such as Paypal.
– 2. Invest through third parties / companies with bitcoins in the balance sheet.
– 3. Mining.
Many of you may not be familiar with the term mining. Mining is like working as an auditor for the crypto market for which you get a reward in the form of cryptocurrency. But it is not an easy task to do mining in case you are an SMB, as cryptocurrency mining depends on power consumption, GPU “Graphic Processing Unit”, ASIC “Application Specific Integrated Circuit “. Mining simply means providing your computer with a high GPU and ASIC which requires a lot of power for consumption and in return you get a reward in the form of cryptocurrency which is usually very low and takes a lot of time. SMEs would have no choice but to invest in additional infrastructure and manpower in order to reap the rewards.
Q6. Global significance?
– Cryptocurrency is not regulated by a central bank and is not printed, it is computer generated.
– There are still no uniform international laws that regulate cryptocurrency.
– Many major and developed countries allow the use of bitcoin, such as the United States, Canada and the United Kingdom
– Other countries are opposed to any use of bitcoin, notably China and Russia.
Q7. How secure is cryptocurrency? How does cryptocurrency keep payment records?
Cryptocurrency uses blockchain cryptography to record transactions. Blockchain technology is considered the most secure. This technology is used to keep highly confidential records, which are used in business for tracking.
Q8. His influence in India?
In India, retail investors hold around 6 billion of these virtual currencies with a high frequency of young investors. India ranked second on a list of 20 countries with the highest cryptocurrency adoption rate, according to the report by crypto-analysis platform Chainalysis 2021. Vietnam took first place and Pakistan came third.
The government has proposed a Cryptocurrency Bill and the Regulation of the Official Digital Currency Bill, 2021, to be introduced in the winter session of parliament, which prohibits the exploitation, holding, sale, the issuance, trade and disposal of cryptocurrency in India. At a meeting chaired by Prime Minister Narendra Modi on November 13, he pointed out the issue of non-transparent misleading cryptocurrency advertising. Insisting on this point, he said that unregulated markets cannot be authorized for money laundering and terrorist financing.
Q10. How will this impact MSMEs?
The biggest challenge for small and medium-sized businesses is money. The crypto market has grown into a major investment center in recent years due to its high returns. If someone had invested Rs 10,000 in Dogecoin a year ago, its value today would have reached Rs 5.75 lakhs. This high return is the major aspect of the transition to crypto, especially among young people. . But like in the stock market, the crypto market fluctuates as well and before investing, you need to understand the concept and its technical aspects.
Technical Aspects of Crypto and Privacy Concerns: – A small scale industry or SME has limited capital to invest in order to have a stake in crypto, one should understand this fact that investing in crypto requires technical skills and analytical also if you want to do mining then it requires high tech computer processing units like GPU “Graphic Processing Unit” and ASIC “Application Specific Integrated Circuit”. In the case of SMEs, this would require additional investments in these units as well as skilled labor to manage the investments.
Q11. Advantages and disadvantages for SMEs?
Cryptocurrency has the following advantages
– Transferring funds between two parties will be easy without the need for a third party like credit / debit cards or banks
– It is a cheaper alternative compared to other online transactions
– Payments are safe and secure.
– Modern cryptocurrency systems come with a user “wallet” or account address that can only be accessed by a public key and a hacker key. The private key is known only to the owner of the wallet
– Fund transfers are made with minimal processing fees.
Cryptocurrencies have the following drawbacks.
– The almost hidden nature of cryptocurrency transactions makes them easy to be the subject of illegal activities such as money laundering, tax evasion and maybe even terrorist financing
– Payments are irreversible.
– Cryptocurrencies are not accepted everywhere and have limited value elsewhere.
– There is concern that cryptocurrencies like Bitcoin are not rooted in any material good.
– As mining is a process that requires a lot of energy consumption, it has a very profound impact on the environment.
Conclusion: Banning cryptocurrency or regulations such as levying taxes on crypto gains are uncertain and will be clearer as the winter parliamentary session progresses. Meanwhile, experts say the government is considering regulating crypto through SEBI, as first reported by NDTV. SMEs need to understand that even though there is a total ban on private cryptocurrencies, investors will always find another way to profit from crypto, but anyone who invests should first understand the current facts and developments.
The government and cryptocurrency platforms should come together to find a way to attribute these cryptocurrency gains to small and medium-sized businesses in India.
Disclaimer: The information provided here is intended to educate MSMEs and the general public and should not be construed as advice for or against investing in crypto currencies. Please inform yourself appropriately about the risks before making any investment.