Ban or regulate crypto currencies

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Ban or regulate crypto currencies

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  • The landscape: In the past two years, Bitcoin, Ethereum Litecoin and Dogecoin became crypto favourites. India has more than 1 crore cryptocurrency (cc) users (and investors), holding nearly Rs.10000 crore in cc assets.
  • A new law: The govt. of India proposed to regulate this market via a new law - the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. The contents are unknown (May 2021) but it surely wants a central bank digital currency (CBDC) backed by RBI, and prohibit most CCs. As on date, the NPCI has left it to the banks to decide whether to ban CC trade transactions or not, keeping itself out of it. [NPCI - National Payments Corporation of India]
  • Ministerial Committee: The official Committee formed to study the entire CC ecosystem said in its Feb 2019 report that the underlying technology of Cryptocurrency could be quite useful in trade finance, mortgage loans, digital identity management or KYC, cross-border fund transfers, and clearing /settlement systems.
    1. Risks - The report spoke of risks like money laundering, too.
    2. Concerns - CC are tough to regulate, being decentralised. Transactions are irreversible, so erroneous ones cannot be rectified. Storage and processing power needed is much higher, so energy consumed is more. Anonymity can lead to various dangers!
    3. Ban them all - Hence the committee wanted all CCs to be banned, except official CC that government may issue someday!
  • Road ahead: The government actions are now guided by this report. So are the risks really too high? It should be remembered unscrupulous elements exist in all systems, be it the CCs or alcohol or drugs. A total ban will be counterproductive as it will move underground. 
  • Bans in a digital world: Since regulatory islands don't exist in the digital world, bans are impossible to execute. Countries will need to make a multilateral regulatory platform, or face cross-border arbitrage. 
    1. A total ban will destroy the many enterprises built around crypto exchanges, protocols and decentralised applications
    2. Young entrepreneurs who've made India relevant to the changing digital world order will be hurt badly
    3. An industry that's following KYC norms on its own, will be hurt.
  • Virtual Swiss Banks: If the cryptocurrency trading is banned, then Virtual Swiss Banks will pop up, making data gathering by government impossible. If things are kept legal and transparent, then data gathering on citizens' crypto involvement is possible.
  • What about losses: A concern is that traders and investors (citizens) may lose a lot of money if cryptos crash. But that's true for stocks as well. Did anyone call for a ban on stock markets?
  • Summary: Regulate the markets, don't ban them. 
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Excellent study material for all civil services aspirants - begin learning - Kar ke dikhayenge!
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