The future of India’s cryptocurrency industry has been uncertain so far, with reports of an impending ban. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is likely in the current parliament session. Mint explains where things stand.
How will India regulate cryptocurrencies?
Surprisingly, it seems no one has seen a draft of the Bill. Expectations are that the Bill will take forward what was set in a draft legislation first seen in 2019. The industry fears the severe limits that the Bill placed on cryptocurrency trade in India. But finance minister Nirmala Sitharaman has said the government will take a “calibrated” approach, which some have found encouraging. While the Centre is unlikely to allow cryptocurrencies like bitcoin, ethereum etc. to be used as legal tender, most crypto users in India treat these currencies like assets, which the industry hopes will not be banned.
What does the crypto industry want?
The Indian cryptocurrency industry, which includes exchanges like WazirX and CoinDCX, has requested the government to reconsider the ban. Platforms like WazirX have seen millions of dollars being spent on crypto in India just over the past couple of months. So, to avoid loss of wealth, the industry has said it will be a better idea to tax them, instead of a ban. The Internet and Mobile Association of India (IAMAI) has also said the creation of a Central Bank Digital Currency (CBDC), or a digital rupee, is not “pre-conditioned” on banning crypto assets in the country.
Can cryptocurrencies be banned in entirety?
This is another aspect that baffles many. Experts say banning cryptocurrencies is impractical because they exist exclusively on the internet, meaning the government can’t really stop users from using them. Cryptocurrencies are held in digital wallets and transferring them from one user to another can be as easy as sharing pirated movies on a thumb drive.
How will a ban affect the industry?
Criminalizing crypto exchanges will make all crypto exchanges targeting Indian users illegal. It might drive crypto holders in India to underground markets, and they’ll likely take their wealth offshore. The overall blockchain industry is also worried that this might make it more difficult and costly to develop new blockchain-based products. Firms often build products on top of the ethereum or other blockchains, and they fear a ban on ethereum may mean using its underlying infrastructure will also become illegal.
Could India launch its own cryptocurrency?
Yes, the Reserve Bank of India is considering a CBDC, which will be a digital form of the rupee. Having said that, CBDCs are different from currencies like bitcoin and ethereum, because they have a central authority controlling them. They use the underlying blockchain infrastructure to bring some transparency and enhance security in the country’s financial systems, but cryptocurrencies were built to take control away from central bodies and create a monetary system that is truly decentralized.