The demonetisation exercise was carried out to wipe out black money from the system. But the black money hoarders seem to have found leaks in the system and they are making use of them to launder their money and hide their cash in fake bank accounts by misusing other banking channels. However, one of the major issues that the government may turn its attention to is digital currency like bitcoin and its possible use to turn black money into digital black money.
Bitcoin is a digital cryptocurrency that is computer generated and not printed or minted physically like a country’s currency. It is created and held electronically in a decentralised system meaning no single person, bank, authority has control over it. It works as conventional forms of currency and is traded worldwide as well.
What helps black money holders is that bitcoin accounts are completely anonymous and are only linked to bitcoin addresses that can’t be linked to your name, physical address or any sort of information that can give away your identity.
Ideally, it is supposed to be transparent with records of transactions kept, but in a huge decentralised network spread over the globe, the money is held in a network called a blockchain–a huge general ledger. The catch is that even if one has a publicly used bitcoin address, nobody can prove for sure that it’s yours, which makes it convenient for people to hide their money. Also, it isn’t difficult to own and operate multiple addresses when people are using hundreds of physical accounts to hide their money.
The common Indian may find it difficult to make the shift to the digital economy. Criminals, on the other hand, might shift their operations to digital currency creating a parallel digital black economy by possibly using something like bitcoin, which is virtually anonymous and almost impossible to trace its owner.
Deep web and darknet are terms alien to most Indians, even for many of the tech savvy individuals. Criminals openly make use of this anonymous network dealing in cryptocurrency like bitcoin, often for criminal purposes. Any manner of services can be found on the darknet available for payment in bitcoin. A few years ago, one of the most diverse drugs network called silk road was exposed which was using darknet and bitcoin.
Handling these challenges should be among the top priorities of the government. It should anticipate this rather than firefight this situation at a later stage. At least three major domestic bitcoin startups are already functioning in India and that number can go up substantially. Foreign-based bitcoin companies are also available for access and negotiating with them is even more difficult.
A recent report by Forbes revealed that after demonetisation was announced, service oriented Zebpay witnessed an upsurge in interest. Indian bitcoin startup Unocoin saw a price hike of about 20 percent while BTCXIndia saw a spike of as much as 40 per cent.
After demonetisation was announced on November 8, Forbes revealed that 60 per cent of another Bitcoin company Bitwage’s Indian customers burst to use their services in mid November. The black wealth grows like stocks using cryptocurrency as well. After 18 days of demonetisation, the price of one bitcoin on Zebpay increased from ₹51,600 to ₹69,500.
RBI and other authorities are nowhere near prepared to handle such a challenge and the need of the hour is to make sure that they prepare in time as people who have a lot of money, especially black money, are also clever enough to find ways to hide it. The government needs to stay a step ahead at all times instead of being caught off guard.