Can India really ban bitcoin? Is it possible at all to do so?
By Pareen Lathia
Every few months, we hear that bitcoin has been banned by some country or the other. As early as 2013, bitcoin was "banned" by Thailand. In 2017, it was big news when China banned bitcoin and the latest news carries a ban by the Reserve Bank of India.
The problem is this news is grossly misleading because it is simply not possible to ban bitcoin, or any crypto currency for that matter.
Bitcoins price last year was hovering around $1,000 mark whereas right now, it is in the $9,000 range. This is in spite of the all the bans. This does not fit into any market logic. But that is the beauty of crypto currencies. They do not fit into traditional regulatory or banking framework. A different outlook is needed to understand how they work and why they were created in the first place.
This is because bitcoin and most crypto currencies that run on Blockchain technology are decentralised. It means they do not run on one server or URL or IP address. These virtual currencies run on multiple nodes that can be owned and run by anyone and are usually spread across the globe. There is no central point for the governments to attack or block.
This is very similar to Torrent protocol. It is peer-to-peer. At the simplest level, if I hold bitcoin in my wallet and transfer it to your wallet, there is no way any government can block it because this entry of transfer is recorded in a distributed ledger.
What has RBI done?
So, what is this ban? If you read the RBI circular, they have never used the words "ban" pertaining to bitcoins. It has only prevented any organisation regulated by the central bank to deal with businesses that have anything to do with crypto currencies. Practically, this means banks will have to stop deposits and withdrawals to and from Indian rupee on crypto currency exchanges. This news spread widely and was seen as a “ban on bitcoin”.
Apart from this, the RBI has issued several warnings about scams and risks related to crypto currencies. It had also said there would be a crackdown on the illegal use of such cryptos.
But traders are still buying and selling crypto currencies under a three-month notice period that was issued to all exchanges. Even after that, the RBI or the government cannot technically ban bitcoin. Also, in the latest event, the Delhi High Court has already challenged this circular calling it “unconstitutional” and the apex bank has to present the basis of this restriction on banks to the court.
Other countries like China and the US have already tried banning exchanges, ICOs and mining of crypto currencies. Although those events in 2017 caused the price of bitcoin to fall temporarily, it went on to peak at $19,783 on December 17.
Since most of the trading happens on international exchanges, banning Indian bourses will only make Indians buy crypto currencies from foreign sources or OTC (over the counter) options because it is simply not possible to track buying, trading or selling of crypto currencies.
Bans in other countries like Japan have also resulted in exchanges moving base to countries with friendlier macro environments like Malta and Estonia. This has only resulted in loss in terms of taxes for the governments of hostile countries.
For everyone who is holding any coins, they would transfer it to a wallet or an international exchange and then sell it for USD and convert USD to INR. This just hurts India because we will not even be able to tax this income if this is done in cash. Also, such a scenario exists only until the time enthusiasts cant buy much with crypto currency.
But there are sites that are already accepting crypto currency as a mode of payment. As more tokens emerge and have real usage, it will be difficult to keep them at bay.
With bitcoin, we have seen the Streisand Effect in play – which means the more governments try to ban it, the more popular it gets, the more news, the more coverage.
The only way to go about this saga is regulation, where checks are in place to ensure customers arent duped, taxation on profits and an era where exchanges follow KYC norms and legal compliances are in place. That would make it much safer for Indian citizens to buy, trade and profit from this revolution and be educated about its risks.
In February 2018, the US government has called for inter-departmental cooperation and allocated resources with the aim to create new legislation to govern virtual currencies.
There is also an opportunity for our country to become the Switzerland of the next century. If one government were to reduce taxes from trading of crypto currencies, the amount of crypto money to come in that country would be mind-boggling.
This may seem like a pipedream, but Malta is already going down this path and attracting major Blockchain players, including the largest international exchange at this time with profits of more than 200 million USD – more than profits of many traditional banks.
Every government wants to ban it because it undermines the power of Fiat currency – US dollar, Indian rupee and the like. But every government has tried and failed and in 2018, it is accepted that there will be regulation rather than bans.
The point of creating bitcoin
A lot of believers of bitcoin see it as a way to liberate ourselves from the control of governments and the financial system. The point is to eliminate the need for printing money and more importantly, banks. So, banks moving out of the equation is a cause for celebration in the community rather than seen as a bad thing.
As countries grapple with regulation and laws, the crypto currency market cap keeps soaring every year. As they say, nothing is more powerful than an idea whose time has come.
(Pareen is a blockchain and crypto currency writer. He's also an investor and a tech entrepreneur)