How does one find out the intrinsic value of crypto? Is limited supply enough to consider Bitcoin a store of value? How will crypto power the future of the web? These are some questions on every investor's mind—be it those who've been investing in stocks or the ones that have invested in crypto in recent years.
To find the answers to all these questions and to know more about the future of crypto in India, finance influencer Pranjal Kamra interviews Sharan Nair, Chief Business Officer of CoinSwitch Kuber, one of India's leading crypto platforms.
Here are some of the questions that were discussed during CoinSwitch's Ask Me Anything session last week:
How does one find out the intrinsic value of a crypto?
Sharan: According to me, intrinsic value is a very subjective thing. What's intrinsic value to me in certain aspects is not intrinsic value to someone else. However, I think the way to look at the intrinsic value of Bitcoin and other crypto assets is asking, what does it solve?
Bitcoin's greatest value comes from the fact that it's a store of value. Now, as of today, what are the existing sources of value? Sometimes it is gold, and you also have options with property. Now if you compare Bitcoin against gold or property, what you see is that Bitcoin is so portable that you can have billions of dollars worth of them in a small storage device. And it's highly liquid, so you can get money in exchange whenever you need it, unlike property or gold.
Taking all this into consideration could help you figure out how to evaluate Bitcoin. I am not a financial guy, and being a tech guy (laughs), this is how I would evaluate it.
Is limited supply enough to consider Bitcoin a store of value?
Sharan: No, limited supply alone is not enough to consider Bitcoin a store of value. It plays a very small part because you can create anything in limited supply at the end of the day. Even my fingerprints are in limited supply, but can they be worth billions of dollars? Absolutely not.
As I said previously, the things that Bitcoin can do is just mind-boggling. People usually look at crypto just from a price, volatility, and speculation perspective. They do not understand that there is so much more beyond all that to crypto. And that's what has been driving the value up. Other factors like its use cases, and the creation of a borderless world, add more to its value.
Speaking of uses, what would you say about the illegitimate uses of crypto? Sharan: So, if we take the internet as an example… When it started, a lot of the criticism was mainly against the dark web, and the internet was made out to be a place where people could do all kinds of illicit things. People had their legitimate reasons at that time to be wary about the internet, and I do not blame them. In fact, I started as a sceptic myself.
For crypto, we cannot say that it is foolproof to such an extent that no illegitimate activity can take place using it, but it is surely and increasingly not a safe haven for those involved in such activities. And why is that? Because it always stores a permanent record of transactions on the underlying blockchain—that record cannot be erased nor altered. So if any fraudster escapes after committing an illicit act, they will be caught in the future. At some point or the other, someone will dig into the traces they left behind.
How will crypto power the future of the web?
Sharan: If we look around today, consumers are not the ones in charge of the content. The centralised servers of companies like YouTube, Google, Spotify, and more are the ones that store the content and are in charge. So it is evident that all of these companies can remove whatever they want whenever they deem it necessary, and that is where Web 3.0 steps in. It eliminates the need for a centralized entity and lets users stay in control of what they want to create and consume.
Web 3.0's server is a decentralised server, which means a lot of people can participate and store information in a decentralised manner. And for these people to participate, which means for them to agree to store the data on their computers, they will need to be given an incentive. Because why would they do it for free? And crypto assets will be used as that incentive.
Web 3.0 will also have a governance model, where people will vote if some content is wrong or propagates hate speech. And that vote will be represented by the crypto tokens.
These are a few use cases through which we can understand how crypto will power Web 3.0.
Is crypto an ideal way to invest in the future of the web?
Sharan: So if you hold some stock of a bank, it moves up and down based on the bank's performance. And if you don't like something about that bank, be it the landing page or the operations, there's nothing really that you can do about it. There's zero active participation allowed, which sometimes may be fatal if the bank goes bankrupt.
However, that's not the scenario with crypto. If you have invested in it, you become an active participant in the ecosystem. And the system is such that it will take on board your suggestions about changes in its functioning.
Why do you think people are drawn to crypto?
Sharan: Everyone I know has heard of crypto because of its massive price appreciation, and that's a fact. It's famous not for the kind of technology underlying it, but because of how much price growth, it has seen in such a short term. And that is what brings people to the industry.
After people become a part of the community, they put in a small amount of money to test the waters. Then they keep learning more and more about it, by joining several groups on social media, and by watching content we put out. And that's what makes them stay.
How do you see the imposed 30% tax on crypto?
Sharan: The fact that taxation is being applied to crypto is the first step toward its legitimacy. And I think this is huge, considering the state of crypto a few years back.
The taxation system will give people more confidence to set up shop in the country. It's good that we now know the intent of the government. Some people say that taxing crypto has got nothing to do with its legality, but there aren't any instances where something illegal got taxed in the country. So, it's my firm belief that this taxation will eventually mean regulation, and that banning crypto will be like banning the internet.
Now, yes, the amount of tax—30% tax and 1% Tax Deducted at Source (TDS)—is worrisome, and a few traders were not happy about it. But what also gives me peace of mind is the fact that we have a government that listens. We usually are a step behind when it comes to regulating and adopting technology, but in this case, India has come to this pretty quick, and I am extremely happy to see that.
Where do you see crypto in 5 years?
Sharan: From people saying that crypto is illegal and that I am running a Ponzi scheme to today seeing the smartest people putting their money in crypto, it feels great to see that we have come a long way. If you look at the government, it is sharing Covid-19 vaccination certificates and uploading land records on blockchains. So if I think of it today, the progress in the upcoming 5 years will be 10 times faster. Because a lot of people are no longer skeptical about it, and now it has all the fuel it needs to grow up.
Were you always interested in finance?
Sharan: There's a saying that goes: I didn't choose the thug life, the thug life chose me! Well, crypto is pretty much like that for me. I got into crypto not knowing what it was about. I had very myopic views regarding crypto. However, slowly over a period of time, by talking to more and more people, I started to get the hang of all these concepts, and I fell in love with what I do.
What are your thoughts on different use cases of blockchain technology?
Sharan: Blockchain technology will completely change the way people go about their daily lives. It will tell people why decentralisation matters a lot. The big tech companies usually put people in a bubble of things they want to see, which ultimately affects their decision, and decentralisation will help people move to a world where no one can affect their decision, they can consume what they want.
Decentralised finance (DeFi) has even made it easier to get a loan in the flash of a second, unlike how it is with banks. And that too you can get one without having to reveal your identity. This is what excites me about blockchain technology.