At a time when India’s digital investors are already facing uncertainty, the government said it may consider blocking internet protocol (IP) addresses of cryptocurrency exchanges or companies dealing in cryptocurrencies. The same was confirmed by a source quoted in a Business Standard report.
The move is cited as a part of the government’s plan to introduce a bill to ban private cryptocurrencies and introduce India’s own digital currency. While the government has proposed to promote technologies like blockchain, it seems to be against individuals holding decentralized digital currencies like Bitcoin and Ethereum.
The government’s proposed plan has not gone down well with the border blockchain and crypto industry, which witnessed sharp growth in 2020. The industry has also said that banning digital currencies like Bitcoin and Ethereum is not possible.
Even if the government blocks the IP addresses of cryptocurrency exchanges, the measures may not be foolproof, according to industry professionals quoted in the report. They added that virtual private networks (VPNs) may be used by individuals to access the exchanges.
Why a blanket ban is not the solution
The government’s concerns with crypto-currencies are two-fold. The first, is that crypto-currencies are global and sovereigns have very little control on speculative activity in these assets. The second, is that crypto-currencies can be used to finance frauds, ponzi schemes, terrorism financing and money laundering. However, crypto exchanges say that a ban on crypto-currencies would not address these concerns. In fact, a ban would just lead to more illicit or black market activity.
Sumit Gupta, CEO, CoinDCX retaliates that ban is definitely not the solution. “Smart regulation for the cryptocurrency industry will be a step to accelerate the digital India movement and also to make us Atmanirbhar. Our expectation from the government is to regulate the crypto-assets “as a store of value and not as another currency,” he says.
Ajeet Khurana–a bitcoin and blockchain expert, too, states in a recent interview with CXOToday that regulating crypto trade could also make India an attractive destination for global blockchain firms.
Earlier this month, a senior government official told Reuters that an incoming cryptocurrency ban was very likely and that holding cryptocurrencies would be punishable by up to 10 years in prison, in what would be one of the toughest policies in the world.
A blanket prohibition would be foolish on multiple levels, believe experts. In fact, enforcing the law would be even more difficult than under the License Raj. Moreover, it would not be possible for the country’s government to seize or even access the network of computers across the world mining cryptocurrency and maintaining blockchain ledgers. More likely, its efforts will only drive the cryptocurrency market underground, which is of a greater concern.
Citizens would be deprived of the very real benefits of cryptocurrency. The ban would prevent Indians from capitalizing on crypto-asset appreciation, which blockchain evangelist Balaji Srinivasan had earlier told Moneycontrol.com that India will make a trillion-dollar mistake by banning cryptocurrencies. The real long-term solution, as he suggested, is for the government to gradually reduce controls over capital mobility and make India a more desirable investment destination.
A silver lining?
Despite anxiety and uncertainty, Finance Minister Nirmala Sitharaman, while speaking at India Today Conclave, suggested that the government would permit certain uses of cryptocurrencies and the blockchain technology they’re underpinned by.
“We are very clear that we are not shutting all options. We will allow certain windows for people to do experiments on blockchain, Bitcoins, or cryptocurrency,” she said.
It’s estimated that India is home to around 8 million cryptocurrency holders. A full ban could send prices tumbling. But investors see some light at the end of the tunnel. “We have already started engaging with the government and other stakeholders at various levels. We are open to any discussion on the topic or any research activity that will support and help to form favorable regulations for the industry,” Gupta says.
India receives the highest inflow of global remittances and using blockchain networks could save Indians billions in transfer fees. Meanwhile, elite Indians with options will flee the country, taking their wealth and innovations with them. Just like what happened during the 1970s and 80s under the licence Raj.
“By incorporating a measured mix of international best practices, existing domestic regulatory regimes, and some new regulations, the Indian Government can promote the use of cryptocurrency in the country,” the Internet and Mobile Association of India has said.
Just like the liberalization in 1990s made India a world leader in IT, opening up further, with regulations could place Indian at the frontier of fintech innovation. Hence, instead of an outright ban, the government should take a hard look at India’s restrictions on financial transactions and bring them in line with the changing world.