The new law set to be passed in the Parliament as “Banning of Crypto Currency and Regulation of Official Digital Currency Act 2019” is designed to ban Bitcoin and other privately managed crypto currencies.
However the law may permit the creation of an Official Crypto Currency called “Digital Rupee” and use of “Block Chain” as a technology for purposes other than creating “Crypto Currencies”. The law may also recognize “Official Crypto Currencies” if any from other sovereign nations as “Foreign digital currency”.
India already has a well developed Digital Banking system and hence the additional benefit that can be expected from the Digital Rupee is minimal.
While mining of Digital Rupee under record from the Central authority may ensure that no “Unaccounted Digital Rupee” is created, the risk of a “Split Block” being created deliberately or by error continues to exist.
Before every new block is authenticated and appended to the core block, there is a time gap in which a transaction remains unauthenticated. This is the time when double spend can happen and unwary customers may get duped. Currently the “Virtual Banking Transactions” happen within a real time session and there is a certainty whether a transaction is through or not. Block chain concept may extend this window of uncertainty which is not desirable.
Also giving an opportunity to people to mine “Digital Rupee” will create a needless overhead on the use of computing resources, consumption of electricity, redundant data consumption as well as the possibility of proliferation of “unauthorized mining scripts” being implanted as a computer contaminant in user’s computers without their knowledge etc will continue.
Hence the concept of “Digital Rupee” included in the proposed law should be seen as an “Enabling Provision” and there is no need for RBI to jump into making use of this provision. There would be a need for a separate Risk Assessment to ensure that this does not pose a risk of “Fake Digital Rupees” getting into circulation.