“I don’t believe in digital currency or cryptocurrency,” Prof. Solomon Darwin said with finality.
Darwin was discussing the possible ramifications of India’s move towards a crypto tax and digital currency.
Darwin is the director of the Garwood Center for Corporate Innovation and executive director of the Center for Growth Markets Institute for Business Innovation at the Haas School of Business at the University of California, Berkeley.
“Even with physical [notes], people make fake copies. There is a lot of fake money. But digital [fraud] is much easier to do,” he said. “Thing is, [if the forged currency is] physical you can catch the person, but with digital, you cannot.” Darwin added that it would be harder to see where the money is coming from, and that Blockchain could be hacked.
When pointed out that whatever people believed the Indian government proposes to tax cryptocurrency, Darwin said it’s an opportunity for the government – a new source of revenue.
“If someone is selling junk and if the government is taking 30 percent [of the price charged for it, the] government is benefiting,” he said, adding that the bubble will ultimately burst and those with the worthless currency would get hurt in the end.
“I don’t know why there is a need [digital currency] when people are already digitally transferring money from one bank account to another,” he said. “Secondly, we are having trouble with physical currency being counterfeited. Digital [currency] will make [online funds] far more prone to the risk of hacking and the amount [involved will likely] be larger. With physical [money] there is a limit; here you can add a hundred zeros.”
Darwin said India is not yet ready with the infrastructure needed to transact digital currency.
“It’s slow. It needs to be tested out,” he said. “Fintech needs to create confidence among the public, only then [should the government] do it.”
Asked for precedent, he said, “I can say remember in the early 1990s, Orange County was the richest county and yet went bankrupt. They went bankrupt because they invested in “mortgage-backed securities” – financial derivatives.”
The algorithms involved in setting up the mortgage-backed security became so complicated that the person who put them together could not understand it. So, overnight the county went bankrupt.
“The most sophisticated and richest people became fools overnight,” Darwin said. “They thought they were investing in something [trustworthy] when they were not. So, the only safest investment in the world is a real asset that you can touch and feel.”
He said the government is creating perceived value rather than real value. Despite people’s hopes, once the bubble bursts, their investments will be worth nothing.
The Indian government is charging 30 percent tax on cryptocurrency, but is not sure what they are doing, Darwin said. By charging 30 percent the government is giving the impression that it supports the currency.
“The government is promoting a junk deal,” Darwin said. “Giving hope to the people, similar to [what] Orange County did.”
Darwin said he agreed Blockchain is a good way to prevent money laundering, but it could still be hacked.
“As long as there are human beings, they will find ways to hack, cheat and do it with precision,” he said.
While welcoming the initiatives the Indian finance minister is taking, he highlighted the growing gap between the rich and poor in India.
“The gap between rich and poor [is] wider and worsening and productivity is going down,” Darwin said. “The best asset the world has to offer is a human being… As an asset you are consuming a lot but not providing back a lot.”
“There is disbalance because the output is less and input is more. That is the problem,” he said.
Darwin disagrees that there are no jobs. He said that there is work, but today people want a certain type of job and salary. In the olden days, the work ethic was the whole family went to the field and all worked and cook the rice and eat.
“The labor market is changing. We need to create real jobs and get rid of programs that don’t promote anything,” he said. “We need better stewardship.”