Cryptocurrency Ban Looms Over Indian Tech Centres
This week saw cryptocurrency head towards the mainstream with Facebook and Line lauching the new currencies, so why is India trying to jail crypto traders for ten years?
Cryptocurrency in India
With an ever-increasing population of above 1.3 billion, India is the 2nd largest country by population in the world. In the last few years, India has had something of an economic renaissance and has been named as the fastest-growing, emerging economy by the IMF.
Despite the socioeconomic progress the country has been making, it has fallen behind in technological advancement, with only around 40% of the population having access to internet and telecoms services. This lack of access and adoption is also evident when it comes to fintech in India, especially cryptocurrency.
In early 2012, small scale transactions in various cryptocurrencies were already taking place in India but in 2013 it became more popular when Kolonial became the first restaurant in India to start accepting bitcoin.
Within a short period of time, a number of cryptocurrency exchanges and ATMs started operating within the country.
Key Players in the Indian Crypto Market
The pioneers in those heady days are now the giants in the current Indian cryptocurrency market. These firms include
These were the few exchanges which started cryptocurrency trading in the country and now rule India’s crypto market.
Other than cryptocurrency exchanges, a number of firms dealing in blockchain technologies are also operating in India. Blockchained India, a group of blockchain enthusiasts organizes the DappFest each year which hosts hackathons, workshops, and international as well as local speakers.
The Indian Government and Cryptocurrency
The history of the Indian Government with Cryptocurrency has been pretty interesting. Here’s brief history -
- 8th November 2016 Prime Minister of India, Narendra Modi decided to implement a demonetisation policy, almost 86% of the country’s paper currency was to be taken out of circulation within 24hrs.
- Post demonetisation People with cash hoards started exploring new means of wealth storage without government scrutiny -they found a home in Bitcoin and other cryptocurrencies, which they would sell later on.
- December 2017 A panel in the Ministry of Finance set up to explore the separation of blockchain and cryptocurrency regulation
- April 2018 The Reserve Bank of India (RBI) directed banks to break all ties with the cryptocurrency exchanges in India. The RBI initiated a large-scale crackdown on the trading and purchase of all sorts of cryptocurrencies in India.
- 5th of April At their bi-monthly monetary policy press conference, RBI Deputy Governor B.P. Kanungo announced that all RBI regulated financial institutions “are required to stop having business relationships with entities dealing with virtual currencies forthwith and unwind the existing relationships in a period of three months’ time.”
- Present Day The Indian Government is taking active steps to ban cryptocurrencies in its entirety throughout the country - a committee is in the final stages of consultations on a formal bill, Banning of Cryptocurrencies and Regulation of Official Digital Currencies Bill 2019.
Why the Hostility?
The reasoning behind this directive, that will effectively wipe out cryptocurrency being traded in India, seems to be really vague at this point. There has been no official statement by the Government or the RBI explaining the motive behind the attempt to ban Bitcoin and its ilk in India.
In one of his speeches back in 2018, Mr Kanungo briefly outlined the reason behind this ban to be that the use of cryptocurrencies within the country could undermine the Anti Money Laundering (AML) and Financial Action Task Force (FATF) framework.
He suggested that its use could adversely impact the integrity of the market and the government's control over the flow of capital. If allowed to grow beyond a critical size, it could also endanger the financial stability of the whole country, he claimed.
The Economic Times also reported that the Indian Government could ban cryptocurrencies under the Prevention of Money Laundering Act (PMLA). Earlier the Government was looking to bring in controlling policies regarding cryptocurrencies and is in the process of getting a committee together. As of now, the above-mentioned bill has been presented by the same committee the Government was in the process of setting up.
Another reason for the push for a crypto ban in India speculated by financial and economic experts is its use in luring investors into fraudulent schemes with promises of high returns. Their logic being, this ban has to be done in order to get this under control.
According to an article in The Economic Times, the Ministry of Corporate Affairs has, in its feedback to the Department of Economic Affairs, pointed out, “the sale, purchase, and issuance of cryptocurrencies such as Bitcoin, Ethereum, Cashcoin etc. are being done by individuals and companies on false inducements of massive returns. Such schemes are neither transparent nor do they fall within any regulated legal framework. Many of them are run as Ponzi schemes.” The feedback also added that these schemes were being used to defraud potential investors.
Does India Want Crypto?
The cryptocurrency giants in India have been facing hostile regulatory policies and have already been choking due to this bill. The trading volumes have nosedived and the number of investors joining this trade has plummeted.
Most of the cryptocurrency exchanges are still striving to survive by moving towards peer-to-peer and crypto-to-crypto trading but the government is constantly trying to close down these blockchain gates as well. If the current bill before India's parliament is passed those who do trade cryptocurrencies by these means will face up to ten years in prison.
A hashtag is circulating, #IndiaWantsCrypto, with proponents offering arguments that cryptocurrencies in India can bring about the democratisation of finance. The blockchain community in India is strong, with excellent turnout at @DappFest in Bengaluru last week. There is a large and growing community resisting the change, and with the developments in the mainstreaming of cryptocurrency in the USA and European markets of late there may come a day of international pressure to bring Indian back to the blockchain.