Decoding The Future of Cryptocurrencies in India
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is likely being discussed in the current parliament session. Many believe that it will impose a complete ban on crypto trading in the country. However, no one has actually seen a draft of the bill yet. Encouragingly, Finance Minister Nirmala Sitharaman has said that the government will take a ‘calibrated’ approach, giving some hope to the industry’s future in India. While we cannot expect that cryptocurrencies like Bitcoin and Ethereum will be allowed as legal tender, most Indian crypto users treat the currencies like assets and hope for no ban.
As for whether a ban is even practical, cryptocurrencies and exchanges exist only on the internet. Since the currencies are held in digital wallets, transferring them from one user to another will be as easy as sharing pirated movies on a flash drive.
The Indian cryptocurrency industry includes exchanges like WazirX and CoinDCX, which have requested the Government to reconsider the ban. The platforms have seen millions of dollars spent on crypto in India and has proposed a tax as a solution instead of a complete ban. The Internet and Mobile Association of India (IAMAI) has also said the creation of a Central Bank Digital Currency (CBDC) or a digital rupee does not require a prior ban of crypto assets altogether.
The Effect of a Ban on the Crypto Industry
Criminalising crypto exchanges might drive crypto holders in India to underground markets, who will likely take their wealth offshore. Aside from making crypto exchanges targeting Indians illegal, the blockchain industry is worried that it will make it more difficult and expensive to develop any new blockchain-based products. Firms often use Ethereum or other blockchains as an underlying structure to build products on top of, and fear that this practice may also be prohibited.
While a CBDC would make the country’s financial systems more secure and transparent, one of the main reasons cryptocurrencies were created was to take control away from central bodies and build a truly decentralized monetary system. A ban on crypto altogether would defeat the purpose entirely.