In recent weeks, there has been a lot of talk about cryptocurrencies. A prime ministerial meeting, a declaration by the governor of the Reserve Bank of India, and a blitz of commercials during cricket matches were all about decentralized digital currencies safeguarded by encryption. The Lok Sabha is expected to table draught legislation regulating cryptocurrency on November 23.
There has been much conjecture as to whether the Bill will outright ban cryptocurrencies or simply regulate them.
Cryptocurrency supporters argue that digital currencies reduce transaction costs and increase financial system transparency. Sceptics, on the other hand, are concerned about the absence of government oversight over such instruments and the possibility that they could be used to fund unlawful activities.
This is all the information you require regarding the scenario.
What’s going on?
The government will present the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, according to the Lok Sabha bulletin announcing the agenda for the winter session of Parliament. The Bill’s goal is to “provide a conducive framework for the formation of the Reserve Bank of India’s official digital currency.”
According to the report, “the Bill also intends to outlaw all private cryptocurrencies in India.” “However, it provides for specific exceptions in order to promote cryptocurrency’s core technology and applications.”
This is all that is known about the Bill officially. However, media outlets have speculated on what it might contain. While the government may not be in favour of an outright ban, others speculate that the Reserve Bank of India is. According to some reports, only a few cryptocurrencies may be permitted, and cryptocurrency gains could be highly taxed.
According to another source, the government will outlaw all cryptocurrencies and impose a phase-out period for individuals who already own them.
Bill 2021 on Cryptocurrency
During the current Winter Session of Parliament, the Central Government will introduce the Cryptocurrency and Regulation of Official Digital Currency Bill 2021. In the past, there have been rumours that the Indian government may outright ban cryptocurrencies. Official sources have lately suggested that the government may authorize trading and investing in cryptocurrencies with specific limits, according to multiple publications.
According to crypto specialists, it will be impossible to entirely outlaw cryptocurrency. The government, on the other hand, may prohibit or restrict crypto trading and its use as a medium of exchange or payment. “Cryptocurrencies live on the blockchain, which is controlled by no single entity. Blockchain’s decentralized character distinguishes it from other digital currencies that may be controlled by a single party. Governments can prohibit cryptocurrency trading and use for payment, according to Edul Patel, CEO and co-founder of Mudrex, global algorithm-based crypto investing platform.
“Exchanges in specific countries may be prohibited from operating. A comprehensive ban on cryptocurrency, on the other hand, would never be practicable. Decentralized exchanges are not governed by any government or organization. These are driven by developer and crypto phile communities. As a result, despite a blanket ban on cryptocurrencies for transactional reasons, a comprehensive ban on crypto would be impossible,” Patel concluded.
The difference between a ‘public’ and a ‘private’ cryptocurrency
Although the central government has yet to define what exactly constitutes a ‘private’ cryptocurrency, it is likely that Bitcoin, Ethereum, and other crypto tokens of the type will not be banned because they are based on public blockchain networks, which means that transactions made using these networks are traceable while still providing some anonymity to users.
Monero, Dash, and other private cryptocurrencies, on the other hand, are built on public blockchains but mask transaction details to provide users with privacy. Unlike Bitcoin, which provides anonymity, Monero provides privacy and is hence a private token.
Is it possible to impose a blanket ban?
Because a cryptocurrency has no inherent value or liquidity, banning the tokens – which may be classified as an asset, a commodity, a currency, or even security – could be problematic. Millions of individuals throughout the world might conceivably hold such a currency – which are essentially non-bannable pieces of code – and still agree to use it as a means of exchange, lending it value.
Because sending cryptocurrency from one wallet to another is effectively the same as transferring data from one computer to another, a governmental restriction may not prevent people from sending bitcoins to one another.
Governments, on the other hand, can always find methods to erect hurdles to such digital token transactions and admission because crypto exchanges are where the majority of investors trade. Blocking them is likely to drive away a portion of mainstream cryptocurrency users who haven’t yet dabbled in the technical world of crypto wallets and the like.
A blanket prohibition in India would force crypto exchanges to close their doors. When China placed a blanket ban on cryptocurrencies early this year, Huobi, one of the world’s major crypto exchanges, had to do the same. On November 8, the exchange’s founder informed the Financial Times that the exchange’s income from Chinese users would be nil in the September to December quarter.
According to a policy expert familiar with government events, there are “two factions” within the government – one that wants to outlaw cryptos and the other that wants to regulate them, according to HT’s sister publication Livemint. “However, because the regulatory scenario isn’t clear,” the individual was quoted as saying, “the first group is coming out on top.” “If the government so desires, it may enact a money bill, which will be cleared in 14 days.” They could also pass an ordinance, which would be more expedient.”
“The crypto regulatory bill has been scheduled for the winter session,” Nischal Shetty, the CEO of WazirX, India’s largest crypto exchange platform, tweeted. The description has remained largely unchanged. On both sides, there will be speculation. The good news is that more government officials are aware of how cryptography works.”
‘GREED’ PREVAILS OVER ‘PANIC’
Bitcoin, the world’s most popular cryptocurrency, set a new high of $60,000 on Saturday, nearly doubling in value this year as its acceptance for payment has grown thanks to high-profile supporters like Tesla Inc CEO Elon Musk.
Despite official threats of a ban, transaction volumes are increasing in India, with industry estimates estimating that 8 million investors already hold 100 billion rupees ($1.4 billion) in crypto assets. There is no official data available.
“Every month, the money multiplies rapidly, and you don’t want to be on the sidelines,” said crypto-investor Sumnesh Salodkar. “Greed is driving these choices, despite people’s worry over the prospective prohibition.”
According to Gaurav Dahake, the chief executive of local crypto-exchange Bitbns, user registrations and money inflows are risen 30-fold from a year ago. Despite fears of a crackdown, Unocoin, one of India’s oldest exchanges, added 20,000 users in January and February.
According to Vikram Rangala, the exchange’s chief marketing officer, ZebPay “did as much volume per day in February 2021 as we did in all of February 2020.”
Top Indian officials have referred to bitcoin as a “Ponzi scheme,” although Finance Minister Nirmala Sitharaman allayed investor fears earlier this month.
“I can just offer you this hint,” she told CNBC-TV18, “that we are not closing our minds, that we are looking at methods to do experiments in the digital world and with bitcoin.” “A very calibrated position will be taken.”
According to Reuters, the goal is to outlaw private crypto-assets while pushing blockchain, a secure database technology that serves as the backbone for virtual currencies as well as a system that experts believe might revolutionize international trade.
“Technology isn’t a problem for us.” “There’s no damage in utilizing the technology,” the person said, adding that the government’s actions would be “calibrated” in terms of the fines imposed on individuals who failed to liquidate crypto-assets within the law’s grace period.
So, what if India outlaws cryptocurrency?
According to various estimations, there are 15 million to 20 million crypto investors in India, with total crypto assets of roughly Rs 40,000 crore ($5.39 billion).
If the Centre decides to ban crypto, investors will have two options: sell their holdings or keep their digital assets in wallets provided by offshore exchanges.
Moving crypto assets to self-custody wallets – digital devices that act like micro SD cards — would be a wise alternative for people who want to keep their digital money despite the ban. The private Bitcoin key or keys are stored in these self-custody wallets, which include Ledger, Trezor, SafePal, and Biloxi. If they are concerned about keeping their wallet in India in the event of a ban, they can send it to friends or family in other countries.
There’s also an agreement that if the government decides to ban cryptocurrencies, investors will have three to six months to sell their holdings.