Bitcoin was developed by a Japanese engineer named Satoshi Nakamoto in the year 2009. His name has been indicated as pseudonymous and so also may be the nationality and the age of forty-five. Satoshi had authored the bitcoin whitepaper, created and deployed bitcoins original reference implementation. His creation solved an unsolved mathematical problem in computer science and has created a trillion-dollar industry today. His idea was to create a totally different currency system.
In June 2010, value of all cryptocurrencies worldwide was just $0 USD. However, as on today, it has risen to $1.1 trillion USD. Bitcoin which hold major share alone is worth more than $600 billion. That’s more valuable than any of the technology unicorns founded in the last decade, and more valuable than leading tech companies such as Airbnb, Uber and Slack combined. Cryptocurrencies like Bitcoin and Dogecoin are making headlines for their surging prices after a group of Reddit users started creating interest around these cryptocurrencies using social media. In Indian pretext, regardless of the immense contribution from crypto projects, the country still lacks a clearly defined regulatory framework for the industry.
New Cryptocurrencies bill is proposed to be introduced in Indian Parliament that contemplates a ban/ prohibition on cryptocurrencies in India. While the scope of cryptocurrency regulation is still ambiguous and has always been a grey area, however, if it gets implemented, will adversely impact emerging crypto community. Till date, there is no clarity what so ever with regards to possession, trading or dealing of cryptocurrencies. Although, what is evident that the government no longer considers the blanket ban on cryptocurrencies as it is not viable, there is still a lack of clarity over India’s stance on cryptocurrencies. In India, though crypto exchanges are considered legal, cryptocurrencies are still not considered as a legal tender, thus, making it difficult for the crypto exchanges to legally operate to the fullest.
Principally, cryptocurrency transactions are structured to be different from those of traditional banks – it is decentralised with nodes spread all across the world viz centralised as in the case of banks. Technically speaking, crypto transactions performed on underlying blockchains that are encrypted with public-key cryptography. This public key cryptography masks the real identities of the individuals behind the crypto transactions, making transactions pseudonymous and making it difficult to track. People think that blockchain is good part of the overall technology but Bitcoin is risky.
Since crypto currencies are pseudonymous and gives sufficient anonymity from tracking the transactions, Bitcoin and other cryptocurrencies are misused by criminals for money laundering, terror financing and other criminal activities. FBI is probing the facts whether foreign governments, groups or individuals had funded the Capitol hill rioters using Cryptocurrencies . As per Chainalysis Investigation report, Far-Right Groups and Personalities Involved In the January 2021 Capitol Riot Received Over $500K In Bitcoin From French Donor One Month Prior. Far-right groups and other personalities received large amount of Bitcoin donations in a single transaction. Donor sent Bitcoins amounting to28.15 BTC, with is worth approximately $522,000 on the day of transfer to 22 separate addresses in a single transaction that occurred a month before the Capitol Hill riots on 08 Dec 2020. This incident shows that domestic terrorism isn’t strictly domestic anymore, International networks play a role as well in funding through crypto’s and domestic terrorist groups may be better organized and funded than previously thought.
As per abc news, In September 2020, the French police arrested 29 people in a largescale operation to break a complex scheme financing Islamist extremists in Syria through the use of cryptocurrencies. These incidents have countries to put in place different measures including bans and new regulatory guidelines to curb the terror financing around cryptocurrencies.
In Indian pretext, rather than banning, Indian government is planning to regulate cryptocurrency. Indian government plans to table “Cryptocurrency and Regulation of Official Digital Currency Bill 2021,” which would possibly push development of a “Digital Rupee” by Reserve Bank of India (RBI) while banning “private cryptocurrencies”. It would provide a framework for creating an official digital currency to be issued by RBI. While what exactly does the bill means for cryptocurrencies like bitcoin and ether isn’t clear at point in time, but the crypto industry has concerns. In case the bill is not tabled in parliament , there are speculations amongst the crypto community that the Indian government is apparently planning to fast track the proposed cryptocurrency bill using the ordinance method.
As per the agenda listed for discussion, the cryptocurrency bill 2021 seeks to prohibit all private cryptocurrencies in India and at the same time allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses. It also seeks to develop an underlying framework for the establishment of the official digital currency that will be issued by Reserve Bank of India. Indian government has taken a “Yes” to blockchain technology but “No” to cryptocurrencies. One of the reasons that the Indian government had moved to ban the use of Cryptocurrencies in 2018 was because of its role in money laundering.
RBI issued a circular in April 2018 banning all the regulated entities in India from dealing in cryptocurrencies or facilitating their operations. Suddenly, that news was perceived that Bitcoin is illegal in India. Most of crypto exchanges had to shut shop instantly and some of them moved abroad. People became very sceptical of trading and holding Bitcoins. However, RBI’s banking ban was overruled by the Supreme Court in March 2020, bringing cheers to crypto exchanges providing services to India based crypto community.
“Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” to be tabled in parliament for discussion states that it may allow for certain exceptions to promote the underlying technology of cryptocurrency and its uses. New bill proposes the ban of “private” cryptocurrencies without defining what does “private” cryptocurrency entails. Technically speaking, Bitcoin and Ethereum are decentralized public blockchain. These ledgers are public and anyone can validate and run a node anywhere in the world, so until a clear indication of what “private” means, it is too early to interpret which all cryptocurrencies have been proposed to be banned.
RBI’s Own Cryptocurrency? RBI is showing keen interest in developing its regulated cryptocurrency “Digital Rupee”. While this is still in a very explorative stage, RBI is working towards setting up a proper framework to create the official digital currency by creating– Central Bank Digital Currency (CBDC).
Keeping in mind the current trends and phenomenal growth in the crypto sector, government has also proposed certain exceptions to promote the underlying technology of cryptocurrency. Industry experts are debating over the use of meaning of the word ‘private’ in the bill and are hopeful for a positive result for the cryptocurrency community in India.
Many Indian traders believe that by regulating Cryptocurrency in India would lead to more economic crisis this is due to the recent news that the Indian government would pass a law that will prohibit usage of private cryptocurrencies in India and a bill that would regulate Digital Currency this year. Besides this, Reserve Bank of India (RBI) will create an official digital currency.
Last year, saw a surge in crypto currency investors in India. The Indian cryptocurrency exchanges such as CoinDCX and Coinswitch Kuber were able to raise early stage funding for their operations. Unfortunately, this bill if passed could end the dreams of cryptocurrency industry in India. Though, the detailed information about the bill are yet not released into public domain, however, what is anticipated is Potential ban that would significantly affect the crypto currency ecosystem. There are over 7 million active crypto currency users in the country, over 340 start-ups offering crypto services, approximately 50,000 employees, over $1 Billion crypto currency assets owned by Indians and millions of dollars in venture capital funding.
December 2020 saw a crypto currency scams responsible for duping people with over $150 million. While these occurrences of scams happen occasionally in the crypto currency space, never the less, crypto exchanges in India came up with a unique KYC guideline so as to verify the identity of customers and reduce the possibilities of money laundering.
What steps in my opinion the government can take are :
- Enforce a law stating that crypto currency are illegal in India.
- It might happen that Crypto currency are not fully banned and Crypto Exchanges will be asked to adopt more stricter KYC norms and may be subjected to some strict regulatory measures.
- People holding crypto currency will have to declare their crypto assets and file income tax returns.
- In case RBI launches its own “Digital Rupee”, it will primarily be a stable coin. Strictly speaking, this will not be a cryptocurrency.
When we look at other countries, in 2017, China banned Initial Coin Offerings (ICOs) and closed trading platforms, Bitcoin prices sharply fell by about 8%. Therefore, It’s not yet clear whether India’s decision to private ban Crypto currencies would have a long-term effect.
There are few countries actually who need Bitcoin, specially the countries who always have currency risk. For them Bitcoin option is the best hedge. Case in point, Iran is moving towards it.
What is seen is that since the time there has been news about Crypto Currency Bill 2021 Likely to table in parliament, Indian cryptocurrency exchanges have started a joint initiative to convince the government to regulate cryptocurrencies rather than imposing an outright ban on them.
They have started a twitter handles #IndiaWantsBitcoin , #IndiaWantsCrypto campaign, the crypto exchanges have also launched websites namely- indiawantscrypto.net and indiawantsbitcoin.org asking for positive and progressive regulations for the crypto markets.
Whichever way the Bill goes, its high time that India should legitimize cryptocurrencies by regulating them like a corporate stock holding, tax them and define cryptocurrency crimes to deter misuse of this technology. Since cryptocurrency are similar to other financial assets, it should be permitted to be traded like a stock and taxed consequently. Government should allow SEBI to regulate crypto exchanges and If this happens, crypto exchanges will be considered at par with other stock exchanges and will increase the confidence investors have in crypto currencies.
What Could be the pipeline? Crypto currency bill has just been introduced in parliament and it could take few months before passing the final note to be declared as a law. In all probabilities, joint committee will be formed and they will have to provide recommendations and more clarity. Accordingly, these recommendations would go to the cabinet and must be passed in the lower and upper house. This bill is very important and will go a long way in deciding the future of cryptocurrency in India, which is stuck in limbo currently, being neither banned nor legal.
Col. Inderjeet Singh Brar is an expert in encryption and block chain technology.
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