R. Gandhi, the Deputy Governor of the Reserve Bank of India (RBI), spoke last week at a fintech conference stating that Bitcoin has value and is eliminating currency. However, he also gave several reasons why digital currencies that are not backed by the government will fail to achieve mass adoption.
Fintech players, leading bankers, technology experts, and policymakers gathered last Wednesday in Mumbai at the conference called Picup (Platform for Innovation and Collaboration with Upcoming and Promising) Fintech 2017. The event was organized by a collaborative effort of IT industry body Nasscom, industry chamber Ficci, Indian Banks’ Association (IBA), and the Boston Consulting Group (BCG).
The Deputy Governor opened the event with a 20-minute inaugural address. He discussed fintech, crowdfunding, blockchain technology and Bitcoin, with the general subject of digital currency taking up the latter half of his speech.
Gandhi introduced Bitcoin by giving a short history of its origins, explaining that the digital currency is rooted in “anarchist philosophy”. He then outlined a few previous attempts at a stateless digital currency from the Cypherpunks movement mentioning May, Back, Dai, and Szabo by name before noting that:
Bitcoins have acquired value. They are being used for settling varieties of economic transactions. People are using them as investment also. And a store of value. So currency is being eliminated.
After highlighting Bitcoin’s accomplishments to date, Gandhi gave many reasons why “the masses” will not prefer it, claiming that Bitcoin has only flourished among its “initial rounds and circles”. He also alleged that the confidence in Bitcoin, or any other digital currencies based on a blockchain, is limited to its early adopters and those who are more comfortable with risk.
“The initial round is always filled with adventurists and risk seekers”, he conveyed. “The moment the masses get in, the risk avoiders get in, they will need greater confidence for its acceptance and continuance, and that can come only if an authority endorses it”, he said.
The broader public, he described, will be unlikely to embrace Bitcoin because the authorities have not done so. For instance, “No established framework for recourse to customer problems, disputes and grievances, and chargebacks etc. is feasible with this kind of framework”, he said.
Claiming that the mainstream will not have confidence in digital currencies as a replacement for state-issued currency, he noted:
My arguments against these virtual currencies stem from two key elements, they are the concept of confidence and anonymity. The currency should be able to sustain these two elements forever. It will impair its exalted status once either of these elements gets affected.
“We can see that in these types of virtual currencies, there is no central bank or monetary authority”, he expressed. “They pose potential financial, operational, legal, customer protection and security-related risks”. The anonymous nature of Bitcoin will also frighten them, he claimed.
Despite admitting that bitcoin has eliminated some amount of currency, the central bank governor said: “It may remain a pipe dream that blockchain will eliminate currency by ushering in virtual currency. It is unlikely”.
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