According to many experts, as cryptocurrencies are simply pieces of computer code, they can’t be banned. Transferring crypto from one wallet to another is no different from sharing music via a pen drive, which means a regulatory ban will not take away people to send crypto to each other.
There are hundreds of millions of people around the world who are willing to hold cryptocurrencies. I can send you some bitcoin, you can send it back. You can call it a currency or not, it does not matter. Bill Gates, the world’s richest college dropout and third richest man, raised doubts about Bitcoin, the world’s most popular cryptocurrency. He said: “My general thought would be that if you have less money than Elon, you should probably watch out.”
The comment was in response to Elon Musk, the boss at electric car-maker Tesla, and a big votary of people buying and owning Bitcoin. Having said that, the government could always create barriers to entry. By banning these platforms, the government could make it difficult for mainstream users to trade in crypto, which brings us to the second point.
Banning crypto is a bad idea
If mainstream users cannot trade on exchanges, they will look for alternative means. As mentioned above, transferring crypto can be as simple as sharing a movie on a USB thumb drive. So, people could technically just find someone willing to transfer the fiat equivalent of a particular amount of cryptocurrency to their bank account. In simpler words, the black market trading of crypto.Black market trading means you have to find people who are willing to give you fiat currency in return for crypto. In the days before exchanges, this was as easy as being active on popular crypto forums, and the same should be true now as well. Since India still accounts for a very small base of crypto users worldwide, sellers here will be able to sell to anyone in any country, as long as they get the fiat equivalent in a currency they want.
Bans come and go, but crypto stays
bans on cryptocurrencies often change. As mainstream acceptance of bitcoin grows, it’s possible the legal landscape globally will change even more.
while it appears some countries are moving towards more restrictive policies, other governments are considering ways they can participate in the future of digital money. In most cases, this is through a central bank digital cur. How each country will engage with the future of money is uncertain, but digital currencies in all forms are likely not going anywhere anytime soon.
According to many, a ban on cryptocurrencies in India will simply increase the black market trade in the country, which used to flourish before crypto exchanges came to the fore. The ban could reduce the number of buyers for crypto in the Indian rupee on any exchange, which means that existing crypto holders will have no choice but to sell their assets off through other means.
Banning cryptocurrency negatively impacts early-stage startups from raising funds. The ongoing COVID-19 pandemic has caused widespread recession across India. Early-stage startups are likely to struggle in raising funds. Globally, cryptocurrency is slowly moving into the mainstream. A failure to regulate the cryptocurrency market would not have the effect of halting the cryptocurrency sector but rather have the effect of taking it underground, bringing into life all of the government’s fear concerning cryptocurrency.
Cryptocurrency can be a way to raise public funds and create productive commercial activity within the economy. Therefore, the government should strive to understand the immense potential and the use of cryptocurrency and take initiatives to regulate the cryptocurrency market rather than impose any form of prohibition.
Further, the crypto industry also fuels a lot of other innovation in the world today. The blockchain systems defined for these currencies, particularly the Ethereum and Bitcoin chains, are used in making many financial products, and more. Experts say that public blockchain-based products may become impossible to create if a ban is enforced.
Essentially, if the government says that you can’t use Bitcoin, then the fundamental blockchain behind that currency also becomes illegal. Or at least that’s what many thinks will happen. This could damage innovation for the blockchain industry, which will essentially have to develop their blockchain platforms from scratch, which costs much more money and time. It’s also like reinventing the wheel, and there’s no guarantee that the industry will be able to come up with better solutions than what already exists.
In December 2020, the UK’s Financial Conduct Authority banned derivatives based on cryptocurrencies (though not the cryptos themselves), saying the products are “ill-suited for retail customers”. But FCA has given people unlimited time to sell off their holdings. This could be a good template for the RBI.
Gadgil and Tailor examine the models adopted by other countries, noting that none has banned cryptocurrencies. Japan, Russia and Australia regulate cryptocurrencies. Japan did not ban cryptocurrencies even after Mt Gox, a Tokyo based cryptocurrency exchange, collapsed after the theft of 8,50,000 bitcoins—the country only tightened its regulations.
Nigeria says no to crypto exchanges
Nigeria doubled down on its crypto ban in February 2021. The largest cryptocurrency market in Africa has had a ban on banks and financial institutions providing on and off-ramp crypto services since 2017. In addition, the announcement even threatened to close bank accounts found using cryptocurrency exchanges.
Furthermore, banning the cryptos faces two inconsistencies. First, against the Supreme Court observation that RBI should first prove their harm and also come to the ban only after exhausting alternatives such as regulation.
Second, banning cryptocurrency is inconsistent with the Draft National Strategy on Blockchain, 2021 of the Ministry of Electronics and IT (MEITY), which hailed blockchain technology as transparent, secure and efficient and one that put a layer of trust over the internet. Once, when the RBI was getting very concerned about the microfinance institutions and was considering banning them, Nachiket Mor, a former banker with ICICI Bank, who works a lot towards financial inclusion made a telling observation to this writer.
“If you don’t like a microfinance institution, create four more,” he said, implying that the market will discipline the wayward oned. Such a principle is apt for cryptocurrencies too. If there are concerns about them, the answer is to have several of them, not a government-owned monopoly.