Days after the Reserve Bank of India governor Shaktikanta Das sounded an alarm on cryptocurrencies warning they pose serious concern to macro-economic and financial stability, the government’s legislative agenda for the upcoming winter session of Parliament showed it plans to ban “private cryptocurrencies”.
The government is set to introduce “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” in the winter session of Parliament, beginning on 29 November, for consideration and passing. The bill aims “to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all "private cryptocurrencies" in India; however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses,” it said in a notification on the Lok Sabha website.
The definition of private cryptocurrencies hasn't been clarified by the government yet. According to some definitions, Bitcoin, Ethereum and many other crypto tokens are based on public blockchain networks, which mean that transactions made using the networks are traceable while still providing a degree of anonymity to the users. On the other hand, private cryptocurrencies could refer to cryptocurrencies like Monero, Dash and more which though built on public blockchains, obfuscate the transaction information to offer privacy to their users. In essence, while Bitcoin offers anonymity, Monero offers privacy, and hence is a private token.
A blanket ban on cryptocurrencies would force crypto exchanges to stop operations in India, and perhaps move their operations outside the country. They will also have to stop taking deposits from users in India, and in rupee. One of the world's largest crypto exchanges, Huobi, had to do the same when China issued a blanket ban on crypto back in September. On November 8, the exchange's founder told the Financial Times that its revenues from Chinese users during the September to December quarter would be zero.
“There are two factions within the government. One that wants to ban cryptos and one that wants to regulate it. But since the regulatory scenario wasn’t clear, the first party is the one that’s coming out on top,” said a policy expert who is in the know of developments. “The government could pass a money bill if they want, which will be cleared in 14 days. Or they could also do an ordinance, which will be even faster,” the expert added.
Nischal Shetty, founder and CEO of India’s largest crypto exchange platform tweeted: “The Crypto regulation bill has been listed for winter session. The description hasn’t changed much. There will be speculation on both sides. The good thing is more people within government are aware of how crypto works.”
However, as many industry executives and experts had noted last time when a ban of this sort had come up, banning cryptocurrencies may be technologically impossible. Industry executives said that while the government can stop rupee from being used to buy crypto, there's virtually no way for them to ban crypto wallets, which exist online and aren't under the purview of banks and governments. Peer to peer networks are also difficult to police, since people can simply transfer rupee to each other through bank accounts, and transfer the equivalent crypto amongst each other through wallets.
After a meeting of the Parliamentary standing committee on finance on crypto-currencies last week, chairman of the committee Jayant Sinha had told CNBC TV18 that it is important to balance innovation and regulation. Citing crypto exchange representatives who attended the meeting, Sinha said that various exchanges together have 15 million KYC-approved users, with an investment value of $6 billion.
According to an October report from blockchain research firm Chainalysis, India ranks second in the world in terms of crypto adoption. While Chainalysis' report didn't have an exact number, in October WazirX founder Nischal Shetty estimated that about 2 crore is a "conservative number" for the "total number of people in crypto in India".
On March 4, 2021, the apex court had set aside an RBI circular of 6 April, 2018, prohibiting banks and entities regulated by it from providing services in relation to virtual currencies.