Every few months, there is a new rumor surrounding Reliance Jio, the 4G operator that has taken the country by storm.
A year ago, it was Jio DTH, which was supposed to put other DTH operators out of business, and now, it’s Jiocoin, which is supposed to put virtual currencies like Bitcoin on notice.
According to various media reports, the operator — led by India’s richest man Mukesh Ambani — is working on bringing out a new virtual currency called Jiocoin.
Issue of “loyalty points could altogether be based on JioCoin,” said Mint in its report. This sounds credible, given that Ambani also controls over a large retail network that is quite big on reward points.
However, there are quite a few reasons why JioCoin — assuming the rumors are true — won’t even be comparable to popular virtual currencies like Bitcoin.
These are reasons that have as much to do with the basic nature of bitcoin as they have to do with the legal and regulatory framework that we live in.
The first and most important point to note is that bitcoin is not owned, operated or controlled by any company or person.
It is a networked software platform that exists on many computers at once, and cannot be taken down without erasing the software from all those computers.
There is no central server or company that you can prosecute to shut down bitcoin.
This is the very reason for bitcoin’s resilience and reliability. Because it doesn’t depend on any company or central server, it is virtually impossible to shut it down.
Now, we come to the question why anyone would want to shut down an alternate currency.
According to media reports, bitcoin has emerged as a viable alternative for those who want to avoid government or regulatory scrutiny of their transactions, such as drug mafias and terrorists.
One of the reasons for the meteoric rise in the value of the virtual currency is this ability to resist and bypass regulatory tracking and scrutiny.
The demand for the currency from smugglers, drug traffickers, terrorists and other assorted ‘bad guys’ has also contributed to its rising value.
The second reason for the rising value of bitcoin — and its attraction as an investment — is relatively more common — human greed. Many people see the value going up, and therefore assume that it will continue to go up.
JIOCOIN – MODEL 1
Now, think of how a possible Jiocoin fits into all this.
There are two potential models for any new currency — a free-floating model like bitcoin with no fixed value, or one with a fixed, guaranteed value, like ‘flex points’ from Vodafone or ‘Supercash’ from Mobikwik.
First, let’s take the second scenario — that of a fixed value.
In this case, 1 Jiocoin could be made equal to 1 rupee.
You could use Jiocoin to pay for your supermarket purchase, instead of rupees. So, instead of paying 500 rupees, you could pay 500 Jiocoins.
Jio could give cashbacks and offers in Jiocoins, which could in turn be used to buy stuff in supermarkets and other places.
The problem with this model is that this is nothing new.
When you buy stuff using PayTM, you get cashback, which you can then use to pay for other stuff. The only difference is in the name — PayTM cash is denoted in rupees, while Jiocoin will be denoted in Jiocoins.
Otherwise, both are the same. If, instead of calling it Jiocoin, it was called rupees, it would make no difference.
This is not to say that such ‘pegged currencies’ make no difference.
They can. For example, in Africa, mobile talktime is often used in place of currency.
This is a powerful idea. You can use Jiocoins to pay and receive money — even your salary.
But there’s a small problem — it will make Reliance Jio richer than anyone else in India, and possibly the world.
Why? Because they, and only they, can create as many Jiocoins as they want and give it to anyone.
In other words, Reliance Jio will take the place of the Reserve Bank of India.
Not surprisingly, when things start heading in that direction, the government of India is likely to shut any such enterprise down.
JIOCOIN MODEL 2
The second option is more like the Bitcoin.
In Bitcoin, there’s no company or person who is in charge of creating new bitcoins and the supply of new coins is limited by the software design.
New coins can be created by anyone by going through transaction data using powerful computers. The number of such coins created in any particular period of time — such as a year — is fixed in the basic software that runs the platform.
This is one of the key reasons why people trust bitcoins — as they know that tomorrow, someone or some company is not going to create a million bitcoins and drag down the value of the currency. In fact, this makes the currency better than many national currencies, which can all be printed by central banks almost at will.
Can Jio create something like this — with a built-in mechanism that allows anyone to create new coins by processing transaction data, maintained using a distributed system that cannot be managed or controlled by a single entity anywhere?
The key question is, would people go for it?
They would, if they think they can make money off it, like they can (at least for now) by ‘investing’ in bitcoins.
This would require allowing the value of the Jiocoin to float freely, and not pegging it to the rupee. In other words, there’s no ‘1 Jiocoin = 1 rupee’. It could be worth 1 paise one day, and 10 rupees the next.
However, chances are that it too will be just another of the thousands of me-too bitcoins already in existence. Given the uncertainty in prices, people are unlikely to ‘invest’ in it or buy it, just like most of the me-too bitcoins are not worth anything.
This could be overcome if Jio guarantees a minimum value, say 1 rupee for 1 Jiocoin.
However, there is no reason or benefit for Reliance Jio to guarantee a minimum value, given that it has no control over the currency.
In other words, what you can, at most, hope to see is a pegged currency that will be like the PayTM cash, with the only difference that it will be called something else.