By the end of 2019, Indian crypto traders, exchanges and hodlers will know how much time is left for them to dispose of their questionable assets.
Introduced in 2009, Bitcoin went on to shatter both pessimist expectations and records when it breached the $19K mark end of 2017. In less than a year, it had climbed down and was trading in the $3-4K range, a steep fall that did not go unnoticed by the committee that has drafted the current bill. It is one of the many factors the bill refers to and that make cryptocurrencies unsuitable for adoption as legal tender or even a payment option.
The following are the reasons for the blanket ban as listed by the bill. Cryptocurrencies are or display:
(i) Steep market fluctuations
(ii) Decentralised nature, hence difficult to regulate
(iii) Vulnerability to phishing cyber-attacks, ponzi schemes
(iv) Irreversible transactions
(v) Require large amount of storage and processing power
(vi) Anonymity, leads to money laundering / terrorism related use
The Indian crypto community has been running a long online campaign, mostly led by crypto exchange owners, to influence the bill and at least remove the threat of cognizable offence and punishment, for which there are very harsh clauses. The launch of ICOs is proposed to be nonbailable. The campaigners raise many critical points, a major one is to classify and allow cryptocurrencies as securities/assets. The issue of Bitcoin and other currencies not being legal tender is not under contention for now.
A silver lining in the Bill is the acknowledgment of keeping an open mind, and its recommendation for a Standing Committee if need be, which could revisit the issues and recognize global tech evolution.
Where is Bitcoin legal?
The Bill recognizes Japan, Thailand and Switzerland where Bitcoin is an additional mode of payment, but not legal tender. As per Longhash.com, there are grey areas here, as cryptocurrencies have not been banned, but not brought under any clear legislation either.
There are 10 countries though that have clearly banned cryptocurrencies— Afghanistan, Algeria, Bangladesh, Bolivia, Pakistan, Qatar, Republic of Macedonia, Saudi Arabia, Vanuatu, and Vietnam.
In China and India until now, cryptocurrencies are “restricted”, and this may change soon for India. China incidentally is moving closer to launch its own national and legal cryptocurrency, and India has similar intentions.
The Reliance blockchain network
The bill refers to the huge energy costs associated with maintaining mining and node networks. The recent announcement by Reliance to set up tens of thousands of nodes as part of its blockchain venture is thus noteworthy in this context. This will be akin to a national blockchain network.
The proposed bill has 2 interesting clauses — a) it allows for experimenting, researching or teaching related to blockchain and underlying processes and technology, and b) it allows for exempting some activities if they are considered necessary in public interest. It also has a provision for immunity for those who make full disclosures.
The upcoming global framework around FATF
As per Nikkei, the G7 countries intend to create a new regulatory system for cryptocurrencies, which will be drafted next year and may be deployed in a few years from now. The developed nations have thus taken note of the new ecosystem and industries developing around blockchain and cryptocurrencies and now intend to pursue their adoption.
India thus has a lot of initial ground to cover in the case of cryptocurrencies.
Direct impact on earning and livelihood
While exchange owners and their employees will miss out on their income, there are also a good number of people making a few hundred or thousand rupees a month working on the newly launched, crypto-based microtasking platforms. Currently in their beta stage, these platforms are where AI and machine learning tasks will be put up, such as data labeling and image classification. With the crypto ban enforced, this and other emerging opportunities for all classes of people, especially the weaker sections, will certainly be lost or jeopardized. The microtaskers may even be forced to continue earning illegal crypto.
What India will miss out on
India will discourage the ecosystem of innovation and new products and services that is under development in full steam around the world. Blockmagic is the online publication that reports on new apps and uses of blockchain. We must however keep hopes alive on the ‘jugad’ and ‘never say no’ spirit. No may not strictly mean ‘no’ when money is the matter.
To speculate a bit, it appears that India is waiting for cryptocurrencies to go mainstream in other countries first, where flaws and pitfalls have been uncovered and addressed, and then adopt their ready-made system to the Indian conditions. This is the Bollywood formula anyway.
Information on the bill courtesy: PRS Legislative Research
Access the complete bill here: Draft Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019