The Indian government wants to ban all private cryptocurrencies, with few exceptions, to pave the way for a central bank-controlled digital currency. But it may not be as harsh as it seems.
The details of the planned legislation remain unclear, with cryptocurrency investors hoping they will be able to trade in the fast-growing sector in India.
How big are cryptos in India?
The market has been bullish since the Supreme Court overturned last year’s ban, having exploded over 600% in the past 12 months, according to research by Chainalysis.
According to industry body Blockchain and Crypto Assets Council (BACC), between 15 and 20 million people are estimated to own cryptocurrencies in Asia’s third-largest economy.
Indians have been bombarded with advertisements from Bollywood and cricket stars for domestic crypto exchanges like CoinSwitch Kuber and CoinDCX.
What has the government said?
Prime Minister Narendra Modi said last week that cryptocurrencies could “spoil our youth” and the central bank has repeatedly warned that they could raise “serious concerns over macroeconomic and financial stability”.
Media reports said the law was working to impose some degree of regulation on the sector – and was also trying to tax it – but would fall short of an outright ban imposed in fellow emerging giant China .
What do we know about the new bill?
On Tuesday, a parliamentary bulletin included a paragraph on “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” in the list of upcoming legislation.
“In order to create a facilitating framework for the creation of an official digital currency to be issued by the Reserve Bank of India,” it read. “The bill also seeks to ban all private cryptocurrencies in India, however, it allows certain exceptions to promote the underlying technology of cryptocurrencies and its use.”
Is there any clue?
One of the major arguments put forward by advocates of bitcoin and other cryptocurrencies is that, unlike fiat currencies, they are not state-controlled.
But crypto investors are pinning their hopes that exceptions and a liberal definition of the word “private” by the government may provide some annoyance.
Well-known crypto tokens such as bitcoin and ethereum are based on blockchain networks that are public and not private, making transactions more traceable while maintaining some anonymity.
But others, such as Monero or Dash, when built on a public blockchain, obscure transaction details to allow users to maintain privacy. It is possible that this may happen in the eyes of the Government of India.
Will the ban work anyway?
Tokens are hard to outlaw because they are pieces of code that have no inherent value. Transferring them from one virtual wallet to another is like sharing computer files.
But on the other hand the crypto exchanges that most investors use to buy and sell tokens can find themselves under more scrutiny.
The government may also set a minimum amount for investment in digital currencies, banning their use as fiat currency, Bloomberg News reported.
“Obviously the wording of (the bill’s announcement) was unfortunate and caused a market panic,” said Ashish Singhal, co-chair of BACC and founder of exchange platform CoinSwitch Kuber.
“And that’s where I would like to urge all crypto-asset investors in the country to remain calm,” he told AFP.
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