Is India going to ban Cryptocurrencies?

Recently, a new bill has been proposed by the govt. of India called the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 which aims to ban private cryptocurrencies, with few exceptions. The exceptions have not been clarified yet. So what does the ban actually mean? What does it mean for people who hold cryptos? And what does it mean for the future of cryptos in our country? These are some of the questions we'll try to understand through this article.

First things first, cryptos are not banned in India. This is a new bill that has been proposed by the govt. It will first have to go through Lok Sabha, Rajya Sabha, President of India and then it will become applicable. This isn't the first time the govt. has tried to ban cryptos. India already tried to ban cryptos in 2018. But the Supreme Court reverted the ban citing the move as being unconstitutional. The govt. was planning to ban all cryptocurrencies last year as well, but the bill was scrapped, a committee was formed to look into it further and the committee was in favour of cryptocurrencies co-existing with the rupee with some regulations.

So now we understand that talks about crypto ban in India are not new. Let's look at why does India even want to ban cryptos? There are two major reasons for that:

• RBI and the govt. feel that cryptos threaten govt. control over the financial market which in some ways is true. But it's important to understand that cryptos are not trying to replace fiat currencies like USD or INR. They are just another asset class similar to gold and real estate where people invest to store and increase their money's value. Cryptos are trying to promote the underlying blockchain technology and provide an incentive to developers to create on the blockchain. Hence, the govt. should look at it as another asset class and introduce regulations to ensure proper use instead of trying to ban it.
• Cryptos have the potential to allow terrorism and malicious activities. That's true but terrorism and malicious activities have been happening way before the advent of cryptos. So saying that we should ban cryptos because of the potential to be misused is not a strong argument.

Now that we know why the govt. wants to ban cryptos, let's try to understand what the ban actually means. If you look at it closely, the govt. aims to ban private cryptocurrencies. Now there are two major interpretations of the term "private".

• Case 1: Major cryptos that we know of such as Bitcoin and Ethereum store all transactions on a public ledger which anyone in the world can access, making them public cryptocurrencies. Private cryptocurrencies are the ones that have a private ledger that masks the transactions from the public or cryptos that are created by private companies. Some of the famous private cryptocurrencies are Monero, Zcash, DASH and Horizen.
• Case 2: The govt. also included in the bill a proposal for RBI to create its own digital currency called Central Bank Digital Currency (CBDC). However, CBDC is being proposed as a legal tender, which means one can use this digital currency in place of INR. Hence CBDC will be a digital currency, but it will not be a cryptocurrency in true terms since the value of 1 INR will remain the same in CBDC and not vary. Hence by the term private, they could also mean any cryptos not owned by the govt. But this seems like the less likely scenario.

So what happens if the bill gets passed and a ban happens?

• Case 1: Only the private cryptocurrencies will be banned and the famous ones like Bitcoin and Ethereum being public cryptocurrencies will continue to be traded the way they currently are.
• Case 2: Assuming the govt. decides to try to ban all cryptos. That would mean that any individual will not be able to transfer money from their banks to crypto exchange platforms where they can buy/sell cryptos. But it does not stop one from transferring their money to someone who doesn't reside in India where cryptos are not banned. So one can just convert INR to USD or any other currency that allows crypto trading and buy/sell using that.

Now in case of a blanket ban on all cryptos, what happens to the crypto you already own? Firstly, the govt. knows that people in India have invested in cryptos. Hence it will ideally give a timeline to the people who have invested in cryptos to pull their money out. Secondly, even after the ban, one can just transfer their cryptos to someone in another country and they can sell it on the exchange and send them the money back. The only thing is that in this scenario, one will have to bear the transaction cost for foreign exchange and transfers which can be more than what crypto exchanges generally charge.

Why is a blanket ban on all cryptos not practically possible?

• Cryptos run on a decentralized technology. Since it is not owned by one single entity, the govt. cannot make a deal with someone to completely stop it.
• Cryptos run on the internet. It's very difficult to ban something on the internet completely. Whether it's PubG or TikTok, people always find ways to use it.

What should the govt. do?

The smart thing for the govt. to do is to start treating it like any other asset class, add regulations around it such as KYC, create bodies that determine who can run and operate crypto exchanges and similar other regulations.

In conclusion, cryptos are not banned in India yet. Talks about bans have been going on since 2018. This is a new technology and the govt. is still trying to understand it. Cryptos are an important part of promoting the underlying blockchain technology and a complete ban can cause India to miss out on blockchain adoption that can have huge growth repercussions which India obviously does not want.  Whether the govt. decides to completely ban cryptos or not is something that will unfold in the coming future. But in any case, there is no need to worry or sell off all your cryptos if you're holding some.