Disguised as a Crypto

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In recent times, there has been a great deal of euphoria regarding investing in cryptocurrencies. Let’s first try to understand if an investment in cryptocurrencies means an investment in a currency or an asset. For any instrument to be classified as a currency, it must have the following characteristics: First, it is a bill of exchange in which the issuer promises a bearer or holder value. Second, it is backed by a sovereign nation and, therefore, it is never a failure to fulfill the promise. Three, printing currency in physical or digital form always relies on some tangible asset, such as gold or a basket of commodities.

From the above, it is clear that cryptocurrency can never be a currency.

Can cryptocurrencies therefore be considered an asset? An asset is something that has tangible value. Even if its immediate usefulness is immaterial, an asset should have tangible benefits. The cryptocurrencies currently being promoted – bitcoin, litecoin, ethereum – are nothing more than game points. Whenever a discussion about cryptocurrencies is held, the promoters talk about blockchain technology. This technology is just a technique for accounting for transactions and has nothing to do with cryptocurrencies, except that the digital exchange of cryptocurrencies is kept in blockchain format. In other words, points earned via a game application are stored and transferred via blockchain technology. As absurd as it may seem, even the points earned in a ludo game can be presented as cryptocurrency if they are stored and sold by the blockchain technology by the people who monetize these 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 at CBI and later, the Directorate of Application, I came across frauds such as multiple marketing schemes, chit funds, or deposit fraud. These schemes were disguised as timeshare schemes, gold and land investments and promised hefty returns. These pyramid schemes have been running for a long time to evade the law. However, it is still possible to ascertain the fraud, trace the trail of funds and identify the perpetrators.

Cryptocurrency promoters have taken fraud to another level with little scope to get caught, as there is nothing anyone promises. One part are the people or persons who release the game or equation from which bitcoins or cryptocurrencies are to be mined, the other are the exchanges through which these points – cryptocurrencies – are exchanged. These so-called cryptocurrencies are only acceptable as long as they are linked to a country’s normal currency. Unfortunately, millions of people are falling in love with this fraud globally. Criminals, especially drug unions, will simply use cryptocurrency clothing to steal and launder their illegal proceeds.

Hats off to RBI Governor Shaktikanta Das for being the first central bank chief to report the matter. The government’s alacrity in introducing a bill to ban and regulate cryptocurrency transactions is equally commendable. India is a democracy where both the government and the opposition unite on issues of national concern.

The recent aggressive promotion of cryptocurrencies in print and visual media may have proved the bane of their promoters. It is only a matter of time before financial fraud prevention agencies like the CBI and ED reach them. But then millions could lose their hard-earned money. Advertisements and promotional activities can, in fact, be important evidence linking people to this fraud. Sensing the impending ban and investigations into crypto agreements, their supporters have already begun to develop new jargon: non-fungible tokens or NFTs.

The writer is the Additional Director General of the Kerala Police. He is a CA and has served as an SP, CBI and Special Director, ED

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