Can India Leapfrog From Traditional To Digital Currencies? Find Out

With the cryptocurrency craze picking up, the most important question on everyone's mind is whether it will eventually replace traditional currency and change the way we trade. In India, too, people are getting drawn to the glittering world of these virtual currencies, even though the flourishing but risky sector is still unregulated. Going by the speed with which cryptocurrency trading is rising, it's set to create disruptions. The Reserve Bank of India (RBI) has said it is planning to launch its own cryptocurrency coin, but it will be done gradually to minimise the disruption to the existing financial system.

Too early to predict

Almost all cryptocurrency coins available today are privately held. Bitcoin, which was created in 2009, remains the most popular of all cryptocurrencies available today. It is also the largest by market capitalisation. Still, the sector is far behind fiat currency in terms of the user base. To say that these virtual currencies can overtake the traditional currency system is a little too premature, especially since it's yet to evolve.

No clear regulatory mechanism

The underlying asset is still the fiat currency for cryptocurrency trading. The rupee or the dollar will remain the primary currency unless an alternative is found. Cryptocurrency is largely seen as a store of value that is able to beat inflation and a quick means to increase wealth. In the absence of a clear regulatory mechanism, cryptocurrency is unlikely to become a means of exchange anytime soon. But it depends on popularity.

Advantages of the shift to cryptocurrency

A shift to cryptocurrencies carries several advantages. Doing so could bring down the transaction cost, help faster digital adoption and create new employment opportunities. Already, several online exchanges that facilitate the trade have come up – like WazirX, CoinDCX, CoinSwitch Kuber, etc – employing hundreds of tech-savvy people and those with an understanding of matters related to money.

The biggest benefit of cryptocurrency trading is that it will bring a lot of people online. The lure of money is hard to ignore and when it grows rapidly, people who feel less inclined towards mobile phones and internet will also develop an interest in them. This could help the country go digital, but will also require investment to improve the existing infrastructure.