It’s a war between the Bank vs Bitcoin in India. After explaining what is Bitcoin and how the cryptocurrency operates. This is my second post discussing cryptocurrency in India. In this post, I have explained the difference between the current banking system and cryptocurrency. Let’s study the brief history of Bitcoin ban in India before drawing a logical comparison.
History of Bitcoin in India:
It was in the year 2018 when RBI, formally known as the Reserve Bank of India imposed an all-out restriction on the purchase and trade of Bitcoin in India. The decision was followed by the shutting down of India’s largest cryptocurrency exchange i.e Koinex. The battle between the bank and cryptocurrency community continued for two long years. Finally, the Supreme court lifted the ban on bitcoin in India and allowed cryptocurrency trading in the year 2020.
At the time of writing this post, cryptocurrencies like Bitcoin, Ethereum, Litecoin, etc are legally traded in the Indian markets on the top crypto exchange like WazirX. After the settling of dust, there’s still some clarity that needs to be established by introducing the cryptocurrency law and imposing taxes on capital gains. The question that remains –
Is Bitcoin in India a threat to the current banking system?
Let’s compare both of these financial systems and draw a conclusion.
Bank vs Bitcoin in India:
1) Centralized vs Decentralized System:
As explained in my previous post on What is Bitcoin, banks are built on a strong centralized system which in layman’s terms means “one to many”. The bank is the centre point of all the legal transactions that take place around the globe. It doesn’t matter if you’re using net banking or a third-party app like UPI or PhonePe you have to connect the device to your bank account in order to perform a transaction. Even the cash you withdraw requires a bank’s ATM. Hence the system is in total control of banks, therefore centralized.
Bitcoin eliminates the need for a Bank
You may think, is it really possible to have a financial system without the involvement of a Bank? The answer is Bitcoin. Yes, Bitcoin is based on a decentralized system that works on DLT (Distributed Ledger Technology) that supports peer to peer transactions without the need for any third-party integration like Banks. All you need is an internet connection, an address and a device to place your trade. This technology is more advanced, safer, and efficient than the current financial system. Let’s discuss further to explore more differences between the two.
Watch the video to learn about Bitcoin decentralized system:
2) Legal Tender:
The biggest plus point of Bank vs Bitcoin in India is that the bank generates a legal tender termed as Indian Rupee which is accepted all over India and worldwide for legal transactions. On the other hand, Bitcoin in India isn’t recognized as a legal tender which makes it vulnerable to hold in the long run.
What is a Legal Tender?
Let me explain it by sharing an example. Let’s say you went to a grocery shop to purchase a packet of 10 Kg rice. In exchange, you have three things to offer to the retailer that is equivalent to the value of 10 Kg rice –
- Indian Rupee
From the options shared above, what do you think will the retailer accepts? The obvious answer is Indian Rupee but why? Because, unlike Bitcoin and Stock, Indian Rupee is a legal tender. You can buy and sell in India using the Indian currency. The only machine that prints and controls this legal tender are banks. Hence, banks have superiority over Bitcoin when it comes to mass adoption of currency acceptance.
Bitcoin is not yet a legal tender
Remember 2016? When the wave of demonetization took over and wiped out a large chunk of money from the system. I am talking about an overnight ban of old notes of Rs 500 & Rs 1000. This is one of the side effects of holding the paper currency which is controlled by government machinery i.e banks.
At any point in time depending on the market situation, the government has the power to suck the money out of the system because it’s the one controlling it through the medium of the banking system. However, cryptocurrency or Bitcoin cannot be demonetized or controlled by a single entity.
As explained earlier, Bitcoin runs on a decentralized network. It’s a digital currency with no material touch like Paper or Gold. It cannot be demonetized by the governing body. This is a clear advantage of cryptocurrency over paper currency.
4) Possibility of Hacking:
It has happened in the past, it may happen in the future. Banks are susceptible to hacking. Despite the strong infrastructure and having a centralized system, banks are vulnerable to hacking. Even if you remove the variable of hacking, banks are always open to getting robbed, this includes bank robbery, mismanagement of money, stealing of ATM machines, etc. Hence the loss of money.
On the other hand, we have cryptocurrency, which is decentralized and cannot be controlled or hackable by anyone. It will take years for an exceptional hacker to hack into the system and steal your Bitcoin. When compared to paper currency, bitcoin is a safe haven in terms of security.
5) Dependency on the Internet:
Bitcoin is a complete digital currency, it is dubbed as currency of the internet. Bitcoin cannot be traded without the internet, therefore makes it 100% internet dependent. On the other hand, we have banks printing the paper currency which can be accessed through internet net banking or by visiting the bank, therefore makes the bank a semi internet-dependent system.
The internet plays a vital role in cryptocurrency, a blackout puts the digital currency in limbo. Having said that, Is it possible to turn off the internet for a longer period of time? What are your thoughts?
Watch my detailed video on Bank vs Bitcoin in India –
After comparing Bank vs Bitcoin in India. It is clear that bitcoin is a far better and efficient system compared to the current financial system. The ease of maintaining the ledger on the network and taking control of money in hand is what makes cryptocurrency personalized. However, despite the advantages, there has to be a level of trust followed by the mass adoption of cryptocurrency in India.
It is too early to comment if Bitcoin or as a matter of fact any other digital currency can be considered as a legal tender. With proper law and taxation in place, it has greater chances of mass adoption. Hopefully, India as a nation should exploit this new technology and use it to build an efficient system.
I hope you have found the comparative analysis helpful in understanding the Banking and Bitcoin system. In my next post, I will analyze cryptocurrency predictions for this decade. Feel free to subscribe to the newsletter and remember to visit the section on Cryptocurrency.
Paras is a blockchain writer & video creator at Katoch Tubes. In his free time, he loves watching space exploration documentaries & Hollywood movies.