Government Plans a Ban on Cryptocurrency in India

The government recently presented its legislative agenda and unveiled 29 bills in total for the winter session. The government proposed Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, and mentions a ban on all private cryptocurrencies in India with some exceptions.

This article explains the draft, whatever we know about it. Whether it is even possible to ban crypto. Towards the end, it offers a probabilistic assessment of whether Cryptos will be banned in India. 

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Govt Plans Bill to Ban Private Cryptocurrency 

The bill obviously hasn’t been passed but has already caused turmoil in the crypto market. It is sure to have caused losses worth billions of dollars as Bitcoin went down over 18%, Ethereum fell 15%, and Tether was down by 18%. 

Cryptocurrency lies on the extremes for most people – either you considered it to be useless or you saw it as the next revolution. Governments around the world did consider ‘banning’ it previously and China and Saudi have done so completely. On the other hand, El Salvador had made BTC its legal tender. Some countries like Malaysia have taken the middle path – but what really matters is where India stands on it. 

 BTC’s flagship feature(in a sense) was its anonymity which has been destroyed completely and watching the meteoric rise of BTC and ETH – a lot of AltCoins were released but unlike the two mentioned above, most of them were/are privately held. 

The government wishes to ban these cryptocurrencies. 

Can you really ‘Ban’ Crypto? 

The answer in very simple terms is a ‘No’. You cannot “ban” cryptocurrencies as you do not have any form of authority over them. BTC is on ‘public ledger’. A less compelling argument would be that the potential blockchain represents is enormous . The government understands this and wishes to launch the currency under RBI. 

Moreover, the Hon’ Supreme Court passed a writ on March 04, 2020 – it overturned the RBI’s circular which prohibited trading VCs. So clearly, if not the government, the judiciary does care about the common people and maybe even understands the potential cryptocurrency presents. 

We have explained the bill. We have explained what it applies to and we have explained whether cryptos can be banned or not (citing both – technical as well as social reasons) the next question really is … 

Will Crypto be Banned in India? 

It is tough to say at this moment. 

Anybody who knows exactly what is going to happen is either lying or is privy to insider information.  At this point, all we can do is make a probabilistic assessment considering all the variables at place. 

  1. The probability of BTC being banned is negligible. 

The government talks of banning “private” cryptocurrencies – BTC is based on a public ledger. It is not a ‘private’ cryptocurrency but the anti-thesis is that Satoshi Nakamoto holds a large percentage of the coins. 

  1. Most Cryptocurrencies are going to die. 

Let’s not be caught up in echo chambers and realize that Cryptocurrencies right now are, in fact, in a bubble. It would be safe to say that it is like the Tulip Mania. ICOs are getting listed and people aren’t interested in reading the White Paper of a Crypto.

At this juncture – as Raghuram Rajan said recently, “Of the 6,000 cryptocurrencies, only 1 or 2 or a handful may survive.” That is what we believe is going to happen. 

The antithesis is that the Judiciary might step in to save the common public and instead of ‘banning’ – tells the Executive to ‘regulate’ private currencies. 

As mentioned, nobody can give a definitive answer to whether the ban on cryptocurrency in India is possible or not. As promised, we delivered a probabilistic assessment.

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