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Why criminalising cryptocurrencies will set India back

Criminalising or even the use of such language to refer to cryptocurrencies will put off some of the brightest minds from India in the crypto revolution.

March 17, 2021 / 04:10 PM IST
What worries governments and central banks about cryptocurrency is that if it becomes mainstream, they’ll lose control over monetary tools such as interest rates and the supply of money.

What worries governments and central banks about cryptocurrency is that if it becomes mainstream, they’ll lose control over monetary tools such as interest rates and the supply of money.

Note to readers: Hello world is a program developers run to check if a newly installed programming language is working alright. Startups and tech companies are continuously launching new software to run the real world. This column will attempt to be the "Hello World" for the real world.

India’s outlook towards cryptocurrency is being eagerly watched by the world of finance. Yesterday, a report that cited senior government sources said that India is likely to ban cryptocurrencies and criminalise possession, mining, and trading of cryptocurrency.

Only a couple of days ago, Finance Minister Nirmala Sitharaman had said that India will not shut off all options when it comes to cryptocurrency. There seems to be an openness to embrace blockchain but a fair bit of scepticism when it comes to cryptocurrencies.

"My view on this is that of course the Supreme Court had commented on cryptocurrency and while the RBI may take a call on official cryptocurrency but from our side, we are very clear that we are not shutting off all options," Sitharaman said at a conference.

The mixed signals we’re seeing could mean that the government is yet to take a firm stance on cryptocurrencies.

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As of now, the government is preparing a cabinet note on cryptocurrencies. The story so for is that India’s central bank had banned cryptocurrency trading in 2018. And in March 2020, the Supreme Court said that the ban was unconstitutional. This meant crypto trading was back in full swing.

In February 2021, nearly $2.3 billion worth of cryptocurrencies were traded on WazirX, India’s largest cryptocurrency exchange. It was at $1.4 billion a month ago and at $500 million in December 2020. Most of this is likely driven by speculation since you still can’t buy bread or most tangible goods with cryptocurrency. (Full disclosure: As of writing this column, I own Rs 7,000 worth of ETH.)

Control Issues

What worries governments and central banks about cryptocurrency is that if it becomes mainstream, they’ll lose control over monetary tools such as interest rates and the supply of money. This in turn affects their ability to control the economy. Governments will also struggle to tax earnings in cryptocurrency and apply provisions that deter money laundering since the currency is global.

ALSO READ: Won't 'shut off' all cryptocurrencies, allow window for experiments on blockchain: Nirmala Sitharaman

hello world logoIf the flow of money into the crypto ecosystem continues at this pace, it is inevitable that cryptocurrencies will be regulated. It is also hard for most experts, let alone columnists like me, to weigh in on cryptocurrency regulation. However, one thing is clear. Cryptocurrencies and the blockchain are at the cutting edge of financial technology. Innovation in crypto and blockchain is a global enterprise and with India’s talent density we have an upside. Several bright entrepreneurs are building products in the space.

Much To Lose

If the government approaches regulation with a heavy hand — like it did the last time around — India has more to lose than to gain. Blockchains and cryptocurrencies have the potential to radically transform every industry that relies on contracts and transactions. It can facilitate irrefutable proof of ownership of digital art, or facilitate smart contracts that execute clauses automatically when certain conditions are met. It can improve accounting, banking, insurance, and nearly every other sector.

India will make a trillion-dollar mistake by banning cryptocurrencies: Balaji Srinivasan 

Decentralised finance based on the blockchain is revolutionising how the financial industry works. A new business order, with digital currencies and blockchain technologies as its cornerstones, is emerging. Criminalising or even the use of such language will put off some of the brightest minds from India and leave us behind.
Jayadevan PK is a business and technology writer. He now works with Freshworks Inc as an evangelist, focusing on efforts around brand building. He is a commissioned author at HarperCollins and his newsletter can be found on turnaround.substack.com
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