In recent times, there has been a great euphoria about investing in cryptocurrencies. Let us first try to understand whether a crypto investment means an investment in a currency or an asset. For any instrument to classify as a currency, it must have the following features: One, it is a promissory note wherein the issuer is promising the bearer or the holder a value. Two, it is backed by a sovereign nation and, therefore, there is never a question of any default in executing the promise. Three, the printing of currency in either physical or digital form is always based on some tangible asset, like gold or a basket of goods.
From the above, it’s clear that cryptocurrency can never be a currency.
Can crypto then be considered an asset? An asset is something that has a tangible value. Even if its immediate utility is intangible, an asset should have some tangible benefits. The cryptocurrencies being promoted currently — bitcoin, litecoin, ethereum — are nothing but gaming points. Whenever a discussion on cryptos takes place, promoters talk of blockchain technology. This technology is just a technique to account for transactions and has nothing to do with cryptocurrencies, except that the cryptocurrencies’ digital exchange is being maintained in blockchain format. In other words, the points which are earned through a gaming application are stored and transferred through blockchain technology. However absurd it may seem, even the points earned in a game of ludo can be presented as cryptocurrency if they are stored and sold by blockchain technology by the persons monetising these points. Therefore, cryptocurrencies have absolutely no value and cannot be considered an asset. Mining and solving the nth root of an equation are euphemisms for gaming points.
While working at the CBI and subsequently, the Enforcement Directorate, I had come across frauds like multi-marketing schemes, chit funds or deposit frauds. These schemes were disguised as timeshare schemes,…
