Should Indians Worry About the Proposed Cryptocurrency Bill, 2021?

The most popular cryptocurrency, Bitcoin has been hitting the headlines for a while now. From gaining popularity in December 2020 for reaching its all time high price of $20,000 to doubting its existence in the nearby future, the Bitcoin story has been gripping. 

Bitcoin has come a long way since it was founded in 2009. It is the first decentralized cryptocurrency that uses peer-to-peer blockchain-based technology which allows online payments to be sent directly from a party to another without going through a major financial institution. A digital virtual currency that cannot be controlled or manipulated by Central Banks and Monetary Authorities. Today, it is attracting the institutional investors and is popularly gaining acceptance as a futuristic store of value. Even with Bitcoin’s ever-rising popularity, there is ambiguity about legality in future. Let us understand why Bitcoin was in the news lately and how possibly it will survive in the Indian regulatory framework in future.

The Background Story

A few days earlier, in the legislative order of business for the Budget session of 17th Lok Sabha, the Indian government has listed a bill for the banning of the most digital virtual cryptocurrencies in India including  Bitcoin, Ether, Ripple and others. The Economic Times reported that a bill named Cryptocurrency and Regulation of Official Digital Currency, 2021 is likely to be introduced in the Parliament for consideration and passing by the government. Many believe that if the bill is passed, it will prohibit the use of major cryptocurrencies as a legal tender and currency in India. However, the bill also highlights that it would allow for certain exceptions to promote the underlying technology of blockchain network based cryptocurrency and its uses.

RBI’s booklet on Payment System

The proposed bill also signals for the creation of a legislative framework for an official digital currency. The Reserve Bank of India (RBI), released a booklet on Payment System on 25th January stating that the Government is exploring whether to issue a digital version of the Rupee. RBI’s booklet titled Payment and Settlement Process in India noted that – 

Private digital currencies (PDCs) / virtual currencies (VCs) / cryptocurrencies (CCs) have gained popularity in recent years. In India, the regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks. Nevertheless, RBI is exploring the possibility as to whether there is a need for a digital version of fiat currency and in case there is, then how to operationalise it.

The Government’s interest to issue its digital currency seems to be influenced by countries like China who have accelerated their plans to issue digital versions of their currencies. China has been working on a digital Yuan for many years and is currently ahead in the race for digital sovereign currency and India is keen to join this global race. 

A Flawed perspective of Bitcoin as a “private cryptocurrency”

Surprisingly, the Indian Crypto industry reacted to the news in an optimistic manner. The crypto industry has asserted that the bitcoin and other popular cryptocurrencies are public and decentralized in nature and hence do not fall under the purview of the government ban who are seeking to prohibit the usage of private cryptocurrencies in India. Globally, major cryptocurrencies are considered as public because of their open, transparent where any participants can verify the transactions on its distributed ledgers. However, there is an interesting perspective that goes unnoticed in this Private vs Public debate. In 2018, the RBI had banned banks from engaging in transactions related to cryptocurrencies until the Supreme Court overturned the ban as it was violating the freedom of business and profession under Article 19(1)(g) of the Indian Constitution. During this Banking ban, major cryptocurrencies including Bitcoin were deemed as private, and even today there is no clear classification of public and private cryptocurrencies leading to more confusion. If the bill is set to be introduced in the Parliament, then the use of incorrect terms such as private cryptocurrency need to be addressed explicitly. 

Kumar Gaurav, the CEO of crypto banking platform Cashaa stated that – 

It is too early to comment on what exactly the term ‘private cryptocurrency’ refers to as per the draft. Further, understanding that cryptocurrency is a global and decentralized system, there is no way any government can ban it.

Bitcoin has come a long way since it was founded in 2009. It is the first decentralized cryptocurrency that uses peer-to-peer blockchain-based technology which allows online payments to be sent directly from a party to another without going through a major financial institution. A digital virtual currency that cannot be controlled or manipulated by Central Banks and Monetary Authorities. Today, it is attracting the institutional investors and is popularly gaining acceptance as a futuristic store of value. Even with Bitcoin’s ever-rising popularity, there is ambiguity about legality in future. Let us understand why Bitcoin was in the news lately and how possibly it will survive in the Indian regulatory framework in future.

The Background Story

A few days earlier, in the legislative order of business for the Budget session of 17th Lok Sabha, the Indian government has listed a bill for the banning of the most digital virtual cryptocurrencies in India including  Bitcoin, Ether, Ripple and others. The Economic Times reported that a bill named Cryptocurrency and Regulation of Official Digital Currency, 2021 is likely to be introduced in the Parliament for consideration and passing by the government. Many believe that if the bill is passed, it will prohibit the use of major cryptocurrencies as a legal tender and currency in India. However, the bill also highlights that it would allow for certain exceptions to promote the underlying technology of blockchain network based cryptocurrency and its uses.

RBI’s booklet on Payment System

The proposed bill also signals for the creation of a legislative framework for an official digital currency. The Reserve Bank of India (RBI), released a booklet on Payment System on 25th January stating that the Government is exploring whether to issue a digital version of the Rupee. RBI’s booklet titled Payment and Settlement Process in India noted that – 

Private digital currencies (PDCs) / virtual currencies (VCs) / cryptocurrencies (CCs) have gained popularity in recent years. In India, the regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks. Nevertheless, RBI is exploring the possibility as to whether there is a need for a digital version of fiat currency and in case there is, then how to operationalise it.

The Government’s interest to issue its digital currency seems to be influenced by countries like China who have accelerated their plans to issue digital versions of their currencies. China has been working on a digital Yuan for many years and is currently ahead in the race for digital sovereign currency and India is keen to join this global race. 

A Flawed perspective of Bitcoin as a “private cryptocurrency”

Surprisingly, the Indian Crypto industry reacted to the news in an optimistic manner. The crypto industry has asserted that the bitcoin and other popular cryptocurrencies are public and decentralized in nature and hence do not fall under the purview of the government ban who are seeking to prohibit the usage of private cryptocurrencies in India. Globally, major cryptocurrencies are considered public because of their open, transparent where any participants can verify the transactions on their distributed ledgers. However, there is an interesting perspective that goes unnoticed in this Private vs Public debate. In 2018, the RBI had banned banks from engaging in transactions related to cryptocurrencies until the Supreme Court overturned the ban as it was violating the freedom of business and profession under Article 19(1)(g) of the Indian Constitution. During this Banking ban, major cryptocurrencies including Bitcoin were deemed as private, and even today there is no clear classification of public and private cryptocurrencies leading to more confusion. If the bill is set to be introduced in the Parliament, then the use of incorrect terms such as private cryptocurrency need to be addressed explicitly. 

“It is too early to comment on what exactly the term ‘private cryptocurrency’ refers to as per the draft. Further, understanding that cryptocurrency is a global and decentralized system, there is no way any government can ban it.”

Kumar Gaurav, the CEO of crypto banking platform Cashaa

What are the most possible outcomes? 

As of now, the bill is included in the list of bills to be presented in this year’s Budget session of parliament. Depending on the nature of the bill, we can predict three possible outcomes. 

First Outcome

The bill won’t be introduced in this Parliament session. This is the most likely outcome because even though numerous bills are included in the list of bills to be presented, only a few of them get picked up. Additionally, Finance Minister Nirmala Sitharaman did not have a single mention of cryptocurrencies in her entire Budget Speech. This is the best-case scenario for the Indian crypto industry because there would be no Government Intervention in the form of “regulations”. However, the crypto industry has to continue its fight towards democratizing and educating the masses on the advantages of cryptocurrencies.

Second Outcome

The bill will be introduced and sent to a standing committee for recommendations. Furthermore, the standing committee composed of various experts will hold discussions with the stakeholders from the crypto industry before moving ahead with the decision of regulations for this sector. Nischal Shetty, the Co-Founder, and CEO of crypto exchange WazirX said that this would be a welcoming outcome because he is optimistic that the standing committee will come to the best conclusions after holding discussions with the stakeholders.  

Third Outcome

The bill will be introduced and passed with a majority. But what can happen under this scenario? Let’s see.

a. If the bill proposes an outright ban on cryptocurrencies as a mode of payment mechanism but allows its trading as an asset then it would be of no concern because 7 Million+ people who currently hold assets worth $1 Billion+ will continue to do so in the future. 

b. This is the most unlikely outcome in which the bill proposes a complete ban on crypto. In this scenario, the government has to come up with a near-to-impossible path to help 7 Million+ people whose currency holds assets worth more than $1 Billion on how to reimburse this amount to them. The government cannot simply just erase the wealth of such a large section of people and thus they will not consider this option. 

Indian Government Clarification in this Fiasco 

Meanwhile, the Indian government has elucidated their position on cryptocurrency and the Cryptocurrency Regulation Bill in answers provided by the Ministry of Finance in Rajya Sabha, the upper house of the Indian Parliament. The clarification has been welcomed by the Indian crypto industry as a piece of positive news and claims that the government is unlikely to impose a blanket ban on cryptocurrencies, including bitcoin. 

Answers about cryptocurrency and digital rupee by Minister of State for Finance Anurag Thakur in Rajya Sabha.

Sanjay Raut, the Member of Parliament in Rajya Sabha from Shiv Sena had asked whether the Indian government is aware of the fact that many business companies are using cryptocurrencies for international transactions during the last year to which Anurag Singh Thakur who is the minister of state in the ministry of finance replied as “No, Sir.” Sanjay Raut proceeded further to ask whether the Indian Government is considering the possibility of introducing India’s own cryptocurrency to which he replied: “No, Sir. It was announced in the Budget Speech of the year 2018-19 that the government does not consider crypto-currencies legal tender or coins and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system. The government will explore the use of blockchain technology proactively for ushering in the digital economy.”

So what do these statements tell us? First, The Government does not seem to have any plans to issue its own digital currency however, the Indian government is exploring the use of blockchain technology to usher in the digital economy. Secondly, the government has hinted that they are oriented towards regulating cryptocurrencies rather than an outright ban. As of now, the government is intending to prevent the scams that are happening in the name of Bitcoin, reflecting the government’s willingness to curb illegal activities and payment systems. 

Given the current regulatory confusion around and the hostile approach towards cryptocurrencies, it is too early to comment on the future of crypto in India but as of now, the crypto industry does not need to worry about losing its assets and they can continue to trade in cryptocurrencies. 

This is not the first time that the Indian government has shown its interest in regulating cryptocurrencies because, in 2019, the Indian government has drafted a bill titled “Banning of Cryptocurrency and regulation of official digital currency 2019”. which was supposed to criminalize trading, holding, or dealing in cryptocurrencies such as bitcoin. The draft had also proposed a 10-year prison sentence for people who “mine, generate, hold, sell, transfer, dispose of, issue or deal in cryptocurrencies.” The bill was not even introduced in the Parliament, and possibly, a similar scenario could happen this time around as well. 

Any wrong regulation such as an outright ban on cryptocurrencies will set our country back by 10 years. Any bizarre attempt at regulations will make us end up losing this golden opportunity of prosperity in this sector of which the whole world is taking the advantage of. The Indian government should at least hold some discussions with the Indian crypto industry to understand the ground realities of cryptocurrencies before moving ahead with any counterproductive regulations. 

References

  1. Indian Government Clarifies Position on Cryptocurrency and Digital Rupee – Bitcoin News
  2. Government lists bill to ban Bitcoin in India, create official digital currency (livemint.com) 
  3. Should Indians panic about the Crypto Bill 2021? – WazirX Blog 
  4. Cryptocurrency regulation: Govt likely to introduce bill to create official digital currency, regulate cryptocurrencies – The Economic Times (indiatimes.com) 
  5. https://www.moneycontrol.com/news/business/cryptocurrency/government-to-introduce-bill-to-ban-cryptocurrency-in-budget-session-6418901.html