When stakeholders tried to decipher the bill from the few details available, the question arose again and again of what exactly a private cryptocurrency is if the cryptocurrency is essentially public.
On Tuesday the government pulled the metaphorical or virtual carpet from under the feet of cryptocurrency investors. In a bill, the center wants to ban all private cryptocurrencies with certain exceptions to promote the underlying technology and its use. Shortly after news of the bill hit the headlines, a bloodbath broke out. Panic selling and increased activity led to the collapse of India’s largest cryptocurrency exchange, WazirX.
As desperate buyers tried to sell their cryptocurrencies, stakeholders tried to understand the proposed bill, and when they tried to decipher the bill from the few details available, the question kept cropping up, what exactly is a private cryptocurrency and when? Is cryptocurrency essentially all public?
The distinction between public and private cryptocurrency is nuanced for many and blurred for most.
In a 2019 report, “Report of the Committee to Propose Specific Actions to Be Taken Regarding Virtual Currencies,” the Ministry of Finance differentiated the two by stating the following: Distributed ledgers use independent computers (called nodes) to record, share and synchronize transactions in their respective electronic registers. This eliminates the need to keep data centralized like in a traditional ledger. Distributed ledgers are records of data shared between different parties. They can be classified as authorized or not, depending on whether the network participants designated as nodes need authorization from an entity to make changes to the general ledger. Distributed registers can be classified as public or private depending on whether the registers can be viewed by anyone or only by entities participating in the network.
Now all cryptocurrencies based on blockchain technology offer some level of anonymity, although not full privacy. Transactions can be tracked and addresses linked. If the identity associated with the address is revealed, there is not much privacy left.
According to Nasdaq, all transactions on an open blockchain can be viewed by someone with access to the blockchain, but what varies is the level of traceability since public currencies are connectable and traceable, but currencies privacy policy shows a lot of stealth tactics to get away from it.
In other words, privacy tokens hide transaction details by default. They have open public books, but the details of the transactions are blurred to protect end-user privacy, Nasdaq said.
Bitcoin, Litecoin, Ethereum are examples of public cryptocurrencies, while Monero, Zcash and Dash are private cryptocurrencies.
WHAT DOES THE GOVERNMENT MEAN?
However, the government’s use of the term “private cryptocurrencies” remains unclear. While the above is understood in a technical sense, there is also another view that private cryptocurrencies could also indicate virtual currencies that are not issued by a government.
In fact, the finance department’s 2019 report also found that cryptocurrencies were created by non-states and are therefore private corporations, and that these private cryptocurrencies have no underlying intrinsic value. “There is no fixed face value for these private cryptocurrencies, which means they neither act as a store of value nor are they a medium of exchange. Since their inception, cryptocurrencies have shown extreme price fluctuations. Therefore, the committee is of the clear opinion that the private cryptocurrencies should not be allowed. These cryptocurrencies cannot serve the purpose of a coin. Private cryptocurrencies are not compatible with the essential functions of money / currency, so private cryptocurrencies cannot replace fiat currencies, ”he explained.
As the bill has yet to be drafted, it leaves a lot of room for debate and discussion. Several interpretations of what government essentially means have emerged from crypto experts and gamblers.
While most of the industry players have accepted that there isn’t a lot of detail for now, they have urged users not to panic sell. Cryptocurrencies traded in red on Wednesday, with Bitcoin witnessing a 25.04 per cent drop, Ethereum going down by 22.86 per cent and Dogecoin 22.54 per cent.
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