Cryptocurrency ban: Panel report leaves many questions unanswered

The Subhash Garg panel as part of its report had submitted a draft Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019

The blanket ban on cryptocurrencies, as recommended by a government panel, could affect, apart from bitcoin, other things also.
 
It could also render anything from your online gift cards to discount coupons illegal, in addition to providing little clarity on how existing cryptocurrency holders will be allowed to return or dispose them of.
 
The Subhash Garg panel to propose specific action to be taken in relation to virtual currencies, as part of its report, had submitted a draft Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019.
 
The draft Bill defines “cryptocurrency” in this manner: “Cryptocurrency, by whatever name called, means any information or code or number or token not being part of any official digital currency, generated through cryptographic means or otherwise, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having inherent value in any business activity which may involve risk of loss or an expectation of profits or income, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes.”
 
It makes an exception to the ban rule on cryptocurrency, and also gives a window for people to declare or dispose of their crypto assets once the Bill comes into force as an Act.
 
Sectoral experts say this definition, especially the part “providing a digital representation of value”, could create issues for online discount coupons and gift cards issued by companies like Swiggy, Zomato, Big Basket, Amazon, and Flipkart.
 
“The wording of that clause is so broad that discount coupons (in Swiggy, for instance) could also get covered. As would in-game tokens, reward points, etc. The point to note here is that this is careless. Clearly this is not what the drafters intended. But this carelessness shows itself in the rest of the Garg panel report as well. None of the evidence they present makes it clear why they recommend a ban (instead of regulation),” tweeted Pranesh Prakash, a technology policy and law expert.
 
Another blockchain expert who did not wish to be named said the clause defining "cryptocurrency" was so broad that a person sharing their airline miles numbers over WhatsApp, which uses encryption that is based on cryptographic principles, could also be banned.
 
“Generally, the courts have said that before resorting to a prohibition, a less restrictive way has to be looked at. Only if the less restrictive measures are not effective, a prohibition should be looked at,” said Jaideep Reddy, technology lawyer with Nishith Desai Associates.
 
Reddy also said that the proposed Bill seemed to be excessive since there were regulatory measures available which would be less restrictive and still addressed the concerns. “However, there is no doubt that there are concerns to be addressed by law,” he said.
 

The Garg panel report, which along with the draft bill was made public on Monday, while recommending a blanket ban on blockchain, said that a federal digital currency should be examined, and that the government should keep an open mind. The committee also recommended that the technology behind cryptocurrency, distributed ledger technology (DLT), whose most common application is block-chain, can be of great benefit to India in several financial and nonfinancial areas, such as trade financing, lowering the costs KYC and improving access to credit.
 
The draft bill has some provisions on the exceptions of the ban, and also provides a 90-day window for people to dispose their crypto assets. It says that the draft law, once it becomes an act, will not apply to any person using technology or processes underlying any cryptocurrency for the purpose of experiment, teaching or research, nor to the use of DLT for creating a network for delivery of any financial or other services or for creating value.
 
The draft law says that any person can make a declaration in respect of cryptocurrency in their possession within 90 days from when the law comes into force and shall dispose of the same within the aforesaid period.
 
“Disposing the crypto-assets domestically during this period may be a challenge because domestic buyers would also not want to violate the law. To allow people to sell crypto assets outside of India, a RBI circular will have to be relaxed. Another option could be that the government buys the crypto-assets. One has to wait and watch since the transition mechanism has not been discussed in detail,” Reddy said.