Ban on private cryptocurrency has been the top news this week as ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ is set to be tabled in Parliament’s Winter Session which will begin on November 29.
But, while the noise has mostly been around clarity of private cryptocurrency and other concerns about crypto being an asset or a currency, one more fundamental question that arises at this juncture is: can the Government of India actually put a blanket ban on private cryptocurrencies?
For the unversed, cryptocurrencies are based on distributed ledgers, that is they use blockchain technology to have multiple ledgers, which are connected over the network. Any transaction on the network is recorded and cross-checked across all these ledgers, which acts as a check. If one ledger’s data does not match the other, it gets cancelled. This removes the need for third-party monitoring of the network or its ledgers. Hence, there is no central institution monitoring the transactions. The network of computers connected to the blockchain does it on its own. This is also the reason why the origin of cryptocurrencies is said to be 'Decentralised Finance' or 'DeFi' which means it is decentralised. As it is decentralised, it is also transparent.
Now, comes the private vs public.
Private cryptocurrencies hide or mask the wallet addresses whereas the public is completely transparent. However, in the Indian context, private cryptocurrencies are being referred to as the ones which are not backed by the government.
“Banning is not an option or even possible. Globally major companies have started adopting cryptoassets strategies. Players such as Visa and MasterCard call themselves crypto first now. Paypal, cashapp, and robinhood have embedded crypto in their product offerings and are expanding further,” says Nitin Agarwal, cofounder of B21, a crypto platform.
“US-based agencies are working aggressively in learning about crypto so they can provide oversight to this industry. Oversight or regulation is needed in order to protect consumer interest, and prohibit money laundering, terror financing and tax evasion,” he adds.
The government should bring about a framework which is broad enough to allow innovation and at the same time provide due oversight to and remove bad players.
According to a statement released by Blockchain and Crypto Assets Council (BACC), of IAMAI, “A blanket ban on cryptocurrencies will encourage non-state players thereby leading to more unlawful usage of such currencies.”
While the council is in favour of declaring cryptocurrency as an asset, the statement also added that a smartly regulated crypto assets business will protect investors, help monitor Indian buyers and sellers, lead to better taxation of the industry, and limit illegal usage of cryptos.As the momentum picked up over the last year in the cryptocurrency space, the segment saw accelerated growth with new users. According to industry estimates, two crore Indians have invested in cryptocurrencies with their holdings totalling up to $4-5 billion.
"It is very difficult to execute a ban on bigger networks like Bitcoin and Ethereum, but it is possible to ban other smaller coins. People will continue to find ways and means to access cryptocurrencies even if a ban is imposed. It will raise concerns of high risk and cash transactions by citizens in a bid to avert the law," says Kashif Raza, founder of Bitinning.