Should 'private Cryptocurrencies' be banned in India? Experts' take

The RBI's official digital currency, also called Central Bank Digital Currency, has been in the works for a while

Friday’s Lok Sabha bulletin proposing to prohibit cryptocurrencies and make way for the Reserve Bank of India (RBI) to issue an equivalent of those has caused panic in the country’s cryptocurrency community.

Many say if bitcoin and etherium are banned, Rs 90,000 crore worth of crypto assets, belonging to 5-7 million Indians, will be at stake. The price of bitcoin, which went up on reports of chief executive officers (CEOs) such as Elon Musk putting #bitcoin as bio in their Twitter handle, has started coming down with some investors selling them. The bulletin has stated the government has listed a Bill — The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 — to be introduced in the Lok Sabha. It proposes to “create a facilitative framework for creation of the official digital currency to be issued by the RBI.

The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses”.

Subhash Garg, former secretary to the Department of Economic Affairs, told Business Standard, “I have to see the Bill. In the previous Bill, a ban of cryptocurrencies was proposed. However, there was a space left to treat cryptos as commodities but that was not categorically mentioned.”

He said cryptos as currencies should not be permitted in India.

Industry is debating what a private cryptocurrency is and whether a bitcoin-like asset is one such.

Some experts have pointed out the wording of the earlier Bill and the latest one were different. The difference is while all cryptocurrencies were proposed to be banned earlier, it is for private cryptocurrencies now.

Siddharth Sogani, founder, CREBACO, a global platform for rating cryptocurrency exchanges and blockchain, said: “Private currencies are issued by private organisations or individuals who operate them for settling transactions. Bitcoin is not a currency. It’s a crypto asset. As people use it for settlement, they have started calling it ‘currency’. It’s a digital commodity or store value first. Further, bitcoin is decentralised, not run by any individual but a network.”

However, Sogani said there were smart contract-based coins/currencies run by individuals but they were scams. The government must have regulations to stop them.

Kumar Gaurav, founder and CEO, Cashaa, the banker to the cryptocurrency industry, said: “Cryptocurrency is a global and decentralised system, and there is no way any government can ban it. That would require a kind of technology and control that does not rest with anyone. What we understand is that the government is trying to crack down on scams running in the name of bitcoin, considering that 90 per cent of these scams do not even operate on a proper cryptocurrency.”

Industry is expecting positive developments on cryptos’ treatment.

Nishith Desai Associates, CREBACO (along with Khaitan & Co.), and a few industry leaders recently made representations to all government departments and agencies that proposed a “regulatory framework”.

Gaurav Mehta, founder, National Digital Asset Exchange (NADX), said: “The decision to ban ‘private crypto-currencies’ is a step to prohibit crypto scams facilitated by individuals. But in the case of bitcoin, ethereum, and other decentralised currencies, the definition of ‘private’ is vague and can be contested in a court of law.” The NDAX provides blockchain forensics and taxation solutions to government departments.

He, however, said: “More than 6 million investors have invested more than Rs 90,000 crore and the fate of such investors is uncertain. By proposing such a shallow regulation, India is positioning itself in league with Algeria, Bangladesh, Ecuador, and Nepal.”

Scam possibilities are large and retail investors who do not understand cryptocurrencies are falling prey to wrongdoing. There was a bitcoin mining scam also.

So far as the RBI-led official digital currency, also called Central Bank Digital Currency, is concerned, it has been discussed for long. Official digital currencies are gaining traction globally and China is the latest major country that has run a few pilots for digitalising its currency yuan and is expected to be introduced in the near future.