The Indian government’s ban on private cryptocurrencies through a draft bill entitled the Cryptocurrency and Regulation of Official Digital Currency 2021 has sent shockwaves around the world.
Will this lead to a blanket ban? Could the government soften its stance amid a public backlash? Those are just two of the questions after a government bulletin surfaced indicating upcoming legislation that could prohibit people from holding, selling, mining or transferring “private cryptocurrencies” in India.
The proposed legislation aims to create a framework that would facilitate the creation of a central bank digital currency (CBDC) to be issued by the Reserve Bank of India (RBI).
The bill does leave room for interpretation. It states that the government will seek to prohibit all “private cryptocurrencies” in India, but allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.
Since the draft bill does not specify what’s meant by “private cryptocurrencies”, it’s unclear whether the proposed ban will apply to heavily traded coins like bitcoin or ether, which are not controlled or managed by any private entities.
Indian cryptocurrency ban explained: What really happened?
In terms of cryptocurrency legality in India, the government has been sitting on a crypto regulation bill for nearly three years. In February 2019, the country’s Inter-Ministerial Committee (IMC) released a report advocating for a law to ban cryptocurrencies in India, recommending that those caught carrying out any activity connected with crypto could be fined or face imprisonment for up to ten years.
The IMC cited heavy price fluctuations and pseudonymity within the crypto market as reasons for why they do not consider cryptocurrency to be legal tender. This initial draft bill, which was not passed in 2019, set the groundwork for the 2021 bill, with clear parallels between the two.
In April 2018, the Reserve Bank of India (RBI) barred banks and financial institutions from dealing with cryptocurrencies, citing concerns over consumer protection, market integrity and money laundering. However, this caused a national uproar and on 4 March 2020, the ban was set aside by the Indian Supreme Court.
India’s prime minister, Narendra Modi, hinted at crypto regulation in India during his inaugural speech at the Sydney Dialogue last week.
The politician stated that cryptocurrencies could “spoil” Indian youth because they pose serious concerns for macroeconomic and financial stability.
Will India’s cryptocurrency ban ripple overseas?
Unperturbed by both the IMC and RBI’s efforts to enact a national crypto clampdown, 32% of Indians aged between 18-24 and 29% of those aged 35-44 have invested in crypto in 2021, according to a report by Finder.
India ranks second in the Global Crypto Adoption Index, behind Vietnam but ahead of countries such as the U.S, UK and China, while large institutional sized-transfers amounting to over $10m represent 42% of crypto transactions sent from India-based addresses. The country is also seeing increased development and usage of innovative decentralised finance (DeFi) projects.
The financial landscape and cryptocurrency regulation in India could change if the draft bill comes into effect during this year’s parliamentary Winter Session, commencing on 29 November.
Its impact on investors, crypto exchanges and policymakers, as well as the wider markets, won’t be fully known until the government releases more of the bill’s details, but crypto adoption and usage could be affected in the wake of any ban.
India is the second most populous country in the world behind China, which has already issued a ban prohibiting domestic financial institutions from dealing in or using cryptocurrency. If the draft bill passes, 2.8bn people (over a third of the global population) will have no access to crypto.
Anndy Lian, chairman of BigONE Exchange and chief digital advisor for Mongolia’s national productivity agenda, believes that if India bans crypto, it could create an outflow of investments.
“Those who want to invest in crypto would still find ways to do it outside of India. The ripple effects of this will be huge,” Lian told Capital.com.
“When the news of the bill first came out, reporters were predicting that stablecoin’s like USDT could drop by 25% to nearly 60 (INR) rupees and numerous Indian exchanges have been facing withdrawal issues due to high volumes of selling.
“But during the panic, we are missing the point that many investors are also buying USDT due to the price differences, as well as moving their assets to other global exchanges. India should take inspiration from Singapore and Switzerland’s pragmatic approaches to crypto in order to remain competitive globally.”
At the moment, the draft bill only includes one short paragraph discussing the proposed cryptocurrency rules in India. The possible impact won’t be any clearer until 23 December, when the parliamentary Winter Session concludes.
But, when news of the draft bill first broke out on 24 November 2021, WazirX, the most well-known crypto exchange in India, crashed when it experienced trading delays in the app – an issue that can result from high user activity.
A looming blanket ban? The implications for crypto traders in India
There are over 13,000 cryptocurrencies, according to data from CoinMarketCap. The Cryptocurrency and Regulation of Official Digital Currency 2021 draft bill does not specify what is meant by “private cryptocurrencies”.
If the Indian government classifies cryptocurrencies on the basis of their ownership, then all cryptocurrencies not issued by the government could be banned under the bill.
One issue is that with cryptocurrencies like bitcoin anyone can see the balance and transactions of any address because all bitcoin transactions are public, traceable and permanently stored on the network.
The blockchain – a shared immutable ledger that facilitates the process of recording transactions and tracking assets – is permissionless and decentralised in nature, allowing anyone to join.
This does suggest that the term “private cryptocurrency” could be void because cryptocurrencies are public, insofar as their transactions are transparent.
The ambiguity surrounding the possibility of a blanket Indian crypto ban is further intensified by the fact that the IMC draft bill proposed in 2019 states that distributed ledgers can be categorised as public or private depending on whether the ledgers can be accessed by anyone or only the participating entities in the network.
In this case, any implications of the proposed ban on crypto trading in India will only become apparent when the government explains what is meant by “private cryptocurrencies”, and whether it’s defined on the basis of ownership.
“It is unclear at this point whether the Indian government will impose a blanket ban on cryptocurrencies, it is more likely that they will seek to regulate digital currencies through several restrictions,” said Anirudh Rastogi, the Founder of Ikigai Law
, a company specialising in blockchain and cryptocurrencies.
“Some of the murmurs are that the government will ban the use of cryptocurrencies for payments, though that begs the question as to how gas payments will be made,” Rastogi told Capital.com.
A government ban prohibiting all “private cryptocurrencies” could have a dramatic impact on the wider crypto community and serve as a stumbling block to crypto’s advancement as an economic force in India.
Original Source: https://capital.com/cryptocurrency-ban-in-india
Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.
Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.
An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.