Think.Nxt Episode 1: Can Crypto Replace Money To Create A New Financial Order?
The Quint’s Raghav Bahl discusses how cryptocurrency gets a value and whether crypto is an asset or a currency.
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In the first episode of Think.NXT With Raghav, The Quint’s Editor-in-Chief Raghav Bahl discusses
how cryptocurrency gets a value
whether crypto is an asset or a currency
and if its popularity has grown because it can buy things that money cannot.
Let's dive in
Joining the discussion on how a crypto coin gets a monetary value attached to it, public intellectual and politician Praveen Chakravarty explained,
“There is technology element to it and there is an economics element to it. The idea of a currency is political and comes from the fact that there is a certain means of trust that people need to be able to engage in transactions in society. And that trust is determined by the political environment or the political stability of a nation.”
On being asked how a crypto coin evokes trust in people so that they can carry out transactions, policy advisor Tanvi Ratna said that the larger question here was – how does one value an asset that does not have a cash flow?
Ratna explained that cryptocurrency is priced the same way as any other asset is priced – by a market.
But what is cryptocurrency, if there is no underlying cash flow?
Elaborating more on the concept of trust, WazirX co-founder Siddharth Menon said that cryptocurrency, from a technology point of view, has solved the conundrum of gaining trust in an asset which is, by and large, decentralised.
“We are in a journey of evolution – from kingdom to country, and now thinking about living on the internet. When it was the kingdom, we trusted the kings of the land; when it comes to the country, we trust the government."
Since transactions are transparent and one can believe the code, trust can actually be scaled not with people, but with machines, Menon said.
Crypto as a medium of exchange?
Asserting that cryptocurrency is nothing but a medium of exchange, KoinX Founder Punit Agarwal said,
Are we trying to use an asset as a currency, similar to the good old barter system?
On being asked if cryptocurrency was gaining value and popularity because it could buy things legal tender cannot, Menon said, “Is it used for the wrong reasons, okay, maybe. But eventually it’s being used for the right reasons. Eventually, the technologies are being embraced. And now, even we are thinking of getting a digital token in India.”
For instance, a good cross-border payment takes 3-4 days but payment through Bitcoin is faster and easier, because the technology element of crypto removes this friction. This has led to crypto’s wide adoption and popularity.
How Has Crypto Become Such A Widely Acceptable Phenomenon?
Disagreeing with Menon, Chakravarty said that the technology element is “almost irrelevant” to the idea the cryptocurrency can be used as a medium of exchange.
Chakravarty added that it is by virtue of its decentralised nature that cryptocurrency is growing in popularity and value.
He underscored the need of a government or a sovereign backing a currency to induce trust for doing transactions in a society, by using the example of conventional media vs social media.
“If something goes wrong in a mainstream newspaper, one knows that the editor can be held responsible for the truthfulness and the veracity of the news. However, in a democratised social media template no one can be held accountable. And hence, there is less trust in social media,” Chakravarty explained.
When Will Cryptocurrency Become A Revolution?
Agarwal asserted that the power of cryptocurrency and the underlying technology will be celebrated when funds – say as part of government schemes and subsidiaries – will be transferred instantly to the benefactors at grassroots level in a transparent and clean manner.
On whether a 1:1 equivalence between a crypto coin and cash flow being necessary to kickstart a revolution in the existing financial order, Menon said that there are many projects which were transacting in cash “but in the digital realm, or in their own token but not in fiat currency.”
Chakravarty argued that there need not be cash flows underlying a cryptocurrency.
“It goes back to the question whether crypto is a currency or not. And by currency, I mean the political idea of a store of value and a medium of exchange."
"So, it’s somewhat stuck in this quagmire,” he concluded.
Dear reader,
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