A few months ago, El Salvador adopted Bitcoin, but ever since, a whopping 86 per cent of merchants in the Central American nation have not processed a single bitcoin transaction. This was revealed in the First Business Survey 2022 report, carried out by the Chamber of Commerce and Industry of El Salvador (Camarasal) between January 15 and February 9, 2022.
Most experts are, however, not surprised, as "bitcoin is not a good payment medium."
Here’s why Bitcoin may not be a suitable option for payments in India.
Fiat currencies have intrinsic value because their supply is controlled and backed by valuable reserves and a sovereign or central bank guarantee. Cryptocurrencies, barring a few stable ones, are not backed by any reserve or sovereign guarantees.
"Cryptocurrencies don’t have intervening value and will not be accepted as payment to most sellers and governments," says SC Garg, former finance secretary of India. This makes them unsuitable as a medium of exchange and as a general-purpose currency, he adds.
Manish Kumar, co-founder of GREX and RealX, a blockchain platform, says that since the value of cryptos fluctuates a lot, and since they are direct public ledger-based, no central bank can intervene to stabilise them. If such cryptos are used to buy items such as bread, you may not even know how much your bread will cost. This nullifies their use as currency, "Kumar adds.
Bitcoin saw a huge seesaw in prices throughout 2021 on WazirX, an India-based crypto exchange. According to data from the Bitcoin Volatility Index, the lowest price of BTC was $28,803.59 on January 1, 2019, and the highest was $68,789.63 on November 10, a difference of 138.8 percent.last 30 days, the volatility percentage of Bitcoin was 4.18 percent.
According to Oriol Caudevilla, co-leader of the central bank digital currency (CBDC) and Blockchain Working Group at the Global Impact FinTech Forum, given the volatility of cryptocurrencies, it’s best to consider them as an investment asset class rather than for payment transactions. He, however, adds that there are thousands of cryptocurrencies that are more suitable than others for being used for making payments.
This is detrimental for India’s crypto industry and the millions who have invested in this emerging asset class. pic.twitter.com/RwWOABbIHC— Ashish Singhal (@ashish343) March 21, 2022
Another aspect that makes them unsuitable for payments is the rules of taxation governing bitcoins. Minister of Finance Nirmala Sitharaman has mentioned several times that cryptos can’t be considered as currency.
While presenting Budget 2022, she announced a tax rate of 30 per cent on "virtual digital assets," such as cryptocurrencies, which will be applicable from April 1, 2022. "Moreover, no deduction in respect of any expenditure or allowance shall be allowed while computing such income, except the cost of acquisition," Sitharaman said.
Besides, it will attract a 1 per cent tax deducted at source (TDS) on any payment made in relation to the transfer of the virtual digital assets, effective July 1, 2022.
Purushottam Anand, an advocate and founder of Crypto Legal, a crypto law firm, said: "Once Bitcoin becomes legal tender in India, the 30 percent income tax levied recently or the levy of GST being discussed currently, will not be applicable." Only the overall income will be subject to annual income tax. This will provide a great sigh of relief to this nascent, innovative industry.
Incidentally, the Ministry of Finance made some changes to Finance Bill 2022 on March 24, 2022. According to one amendment proposed in Section 115 BBH, the word "other" from the provision which deals with the set-off of virtual digital assets losses from gains was to be deleted. Technically, removing the word means that losses from the transfer or sale of virtual digital assets will not be offset against gains from the transfer of another virtual digital asset.