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Cryptic Cryptos & Digital Currencies

We recently heard of a crypto exchange being hacked. In past too, there have few unexplainable incidents with hundreds of millions of dollars being lost across some exchanges. This leaves a big credibility gap w.r.t. Cryptocurrency Exchanges that facilitate them.

We have also seen terms like Non-Fungible Tokens (NFT’s) which are used to digitise and eventually assign some value to an asset. This is how digital art worth millions of dollars are getting traded. These too mostly involve cryptocurrencies.

We have also recently seen rise of a phenomenon called CBDC’s (Central Bank Digital Currencies). This too appears to be an attempt to bring Cryptocurrencies to mainstream. CBDC is also being presented as some form of a magic potion, which will bring financial inclusion and overcome challenges with traditional currency.

But is it that simple? Though traditional (physical) currency has limitations especially w.r.t large ecosystem for printing, storing, handling, counterfeits etc. It also creates friction, delays settlement and adds to economic & transaction costs. But, most of these can be (and is) mitigated through use of Digital Payments & Digitising the ecosystem.

Besides, in challenging scenarios like Natural Disasters, Power Failures, Cyberattacks, unavailability of network or challenges with digital devices. Physical currency serves as a very good alternative and will most likely always be retained in some form.

Also, new digital currencies (CBDC’s) being talked about, have larger economic and monetary aspects to be considered w.r.t their base (Say the classic Gold Standard), then Fx rates, conversions, capital movement etc. are also involved, which will imply some form of a parallel system to be run. This is not desirable, as it makes financial management more complex for central banks. Another challenge w.r.t these digital currencies is from monitoring and compliance like AML etc.

So, does that mean there is no future for such Crypto’s or digital currencies? The answer is both yes and no.

Such currencies can be used in a limited form, within some tight knit ecosystems like say Airport Duty free, Special Economic Zones, casinos, betting (where it is legalised) or in small tax haven countries. There should be conditions on people who can use them i.e. say min capital requirements, Networth, clear tax history etc.

The common man must not be exposed and be more a part of standard currencies with emphasis and rewarding digital modes of payments and / or leviying a charge on physical payments. However, this must be done with adequately developed infrastructure, resources & policies to support.

The cross-currency movement between so called digital currencies and traditional currencies must be tightly monitored, restricted / directed, so as to confirm to regulations and compliance like AML, convertibility etc., while also ensuring that there are no asset bubbles and inflationary pressures created in respective economies. This may involve assigning quotas / limitations to turnover, transaction size etc.

If both these systems (if created) are not islanded, then there is a risk of inflation, asset bubbles, social imbalance, malpractices & criminal acts. We see this happening in some form stocks, commodities, bonds too.

One final aspect which many disregard is w.r.t Familiarity, user awareness and education. People are more familiar with traditional currencies rather than many of these exotic, non transparently managed cryptos. Once again, I will cite example of financial products and stock markets, where there is lot of miss-selling and herd mentality. So, adequate disclosures and awareness needs to be generated and as mentioned earlier, participation must be restricted to such avenues.

Finally, whenever I think of cryptocurrencies, I remember a famous song where the lines read “You can check-out any time you like, But you can never leave”

So, as I convey my thoughts around this topic, am happy to hear other views around the same.


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Kartik Swaminathan

Kartik Swaminathan

Author - 3F: Future Fintech Framework & Founder

Fintastech (Fintech Consulting & Coaching)

Member since

29 Sep 2014


Navi Mumbai, India

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