Is it possible to ban cryptocurrency in India?
“Cryptocurrencies are literally just a piece of open-source software. There’s nothing else. It exists on the internet, it’s open-source software, anyone can implement it, it runs wherever the internet runs, and they have a monetary policy where these assets are algorithmically generated.” Jeremy Allaire, CEO of Circle.
Skeptics sometimes argue that governments will ban Bitcoin at some point; it will become too important of a currency and it will eventually threaten national sovereignty. The same could be true for other cryptocurrencies. Such were the voices in India, recently. However, as the Bitcoin magazine argues, it may be said that this panic is caused by a failure to understand “the power of distributed open-source technologies and the game theory faced by governments when making these decisions”.
In fact, the latest twist in national law encompasses the principles of cryptocurrencies and the exchange of digital assets because, in the end, transferring cryptocurrencies from one wallet to another is no different from sharing music via a USB stick. At the same time, governments are realizing that the cryptocurrency ban would only increase black-market trading in the country.
In the US, for instance, it was illegal for citizens to own over a certain amount of gold to prevent hoarding (that is, from 1933 to 1975).
The law proved too difficult to enforce. Only a few cases of gold buyers who were prosecuted can be found.
As Tony Spilotro noticed:
“The sheer cost in resources and time required to add Bitcoin to the ever-growing list of banned goods like weapons, drugs, and more would be large, and wasteful. And if the war on Bitcoin is as large of a failure as the war on drugs or war on terrorism, Bitcoin will become part of everyday society whether there are wars waged against it or not”.
Governments can’t technically ban crypto
Many crypto experts argue that as cryptocurrencies are simply pieces of computer code, they cannot be banned. This is the opinion of Chanpeng Zhao, the CEO of Binance.
“Theoretically, yes. You can call it an asset, a commodity, a currency, or a security. But fundamentally, cryptocurrency does have value and liquidity. 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. If there is an agreement, it acts as a medium of exchange” Zhao said last month.
Jeremy Allaire, who is the co-founder and CEO of global financial services company Circle, also explained the nature of cryptocurrencies which will make it very difficult to ban:
“I think the challenge that we all face with this is some of these cryptocurrencies — they’re literally just a piece of open-source software. There’s nothing else. It exists on the internet, it’s open-source software, anyone can implement it, it runs wherever the internet runs, and these have a monetary policy where these assets are algorithmically generated…That is a challenge that every government in the world now faces — that money, digital money, will move frictionlessly everywhere in the world at the speed of the internet”.
Bad regulation is better than no regulation at all
Banning crypto is a bad idea because it would just create a black market. If users cannot trade on exchanges, they are likely to get creative. “Transferring crypto can be as simple as sharing a movie on a USB thumb drive. So, people could technically just find someone who is willing to transfer the fiat equivalent of a particular amount of cryptocurrency to their bank account”.
The crypto industry is innovative and can confer some societal benefits. It fuels the discovery of new technologies. A ban on cryptocurrencies would mean ordinary Indians would be deprived of the very real benefits of virtual tokens. As reported by Bloomberg, “the ban would prevent Indians from capitalizing on crypto-asset appreciation, which blockchain evangelist Balaji Srinivasan has called a trillion-dollar mistake. India receives the highest inflow of global remittances and using blockchain networks could save Indians billions in transfer fees”. All of this would also not prevent what the Indian government fears the most — tax evasion. Cryptocurrencies are not like gold bars or dollar notes, and they are difficult to track.
What is more, banning cryptocurrencies could also mean banning NFTs, too, by default. This would be a mistake. NFTs present numerous opportunities for digital creators. If India wants to be competitive on the world stage, this move must be avoided.
Having said all of the above, the government could still try and create barriers to entry; for instance, by banning certain exchanges, or all of them.
The same as Chinese investors, who try to bypass regulatory oversight by taking bets on domestic and foreign over-the-counter (OTC) desks, Indian investors could take a similar approach if necessary.
OTC trading desks and P2P trading platforms such as Local bitcoins, Paxful, and a host of others have made life easier for Bitcoin traders across the globe, especially in regions where the government has banned crypto trading.
Disclaimer: That opinion in this article expresses the views of the author solely.
Coinsbit India is a peer-to-peer crypto trading platform connecting buyers with sellers which are powered by Europe’s largest and award-winning cryptocurrency exchange. Coinsbit.in aims to bring a professional, smooth, easy, and highly liquid Crypto platform in India delivering a superior user experience.