Indians throng to crypto-currencies despite government warnings

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When India declared most bank notes unusable more than a year ago, in its efforts to flush out corruption, many tech-savvy users flocked to cryptocurrencies, especially bitcoins.

Now, fifteen months later, the country’s finance ministry and the central bank are in a conundrum — regulating bitcoins and cryptocurrencies and decoding the ‘anonymity veil’ offered by cryptocurrencies to tackle corruption.

Prime Minister Narendra Modi’s decision to withdraw India’s high-value rupee bills in November 2016 was intended to root out a culture of tax evasion so widespread it had become the norm.

“A lot of governmental concerns are valid as huge amounts of cash may have been invested in cryptocurrencies post demonetisation and people may likely use it for tax evasion, money laundering or even terrorist financing,” Anirudh Rastogi, Founder at Delhi-based TRA told this reporter.

As tens and thousands of Indians indulge in trading or investing in bitcoins, India’s finance ministry, in a December statement, has likened bitcoins to ponzi schemes.

“There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes which can result in sudden and prolonged crash,” it said in a statement, much to the chagrin of the investor community.

In January, India’s finance minister Arun Jaitley too termed the cryptocurrencies ‘not legal tender’ and announced the government was taking detailed steps towards cryptocurrency regulations.

But, with the bitcoins raging popularity, almost a dozen cryptocurrency exchanges have popped up across the country feeding into consumer frenzy.

Currently, one bitcoin is worth over $11,000 in India and was valued at over a million dollars before the prices nosedived, fueling fear about tax evasion amongst Indian authorities.

-Bitcoin’s soaring popularity-

Numerous warnings issued by India’s central bank have failed to deter many, including Bangalore-based couple Prashant Sharma and Niti Shree, who received 95 percent of their wedding gifts in the form of bitcoins last December.

The wedding, which garnered tremendous local media attention, was conceptualised by the couple who wanted to marry ‘technology with Indian traditions’.

“For a technologically savvy marriage, bitcoin was the perfect gift and our friends and family knew things would be different as we both hail from the digital space with a huge interest in cryptocurrencies,” Sharma told this reporter.

Other investors like entrepreneur Kushal Raha, meanwhile, believe the government must understand bitcoin and blockchain technology instead of demonising it.

“The government must swim with the cryptocurrency wave rather than swimming against it,” Raha told.

Bitcoin is a purely online currency created from computer code, in circulation since 2009 and is enabled by blockchain technology.

The identity of its creator or creators remains a mystery.

Blockchain is a digital ledger stored across a network of computers without the need for any central authority, a mechanism which protects it from tampering and all transactions are listed publicly.

Amid caution from global governments, Bitcoin has seen a dizzying rise in value in recent weeks.

Earlier last December, Bitcoin had jumped almost 10 percent to $19,500 according to Bloomberg reports, buouyed by CME group’s futures trading in cryptocurrencies.

But, the valuations fell somewhat as financial investors expected a bubble amid rising speculation and volatility.

Currently, the ever speculative bitcoin is valued at $11479.11, according to data from CoinDesk, a digital media platform that monitors the cryptocurrency space.

-Regulations and corruption-

Bitcoin burst out of the shadows in 2017, seducing Wall Street and individual investors alike even though many still struggle to understand precisely what it is.

The cryptocurrency’s rise is pushing regulators globally including France, Denmark and India to consider taking action after years of simply urging caution.

Payments occur without intermediaries and providing personal information is not required with cryptocurrencies.

Such anonymity and the lack of regulation has attracted traffickers and other criminals seeking to launder funds while turning off many conventional investment professionals.

“The primary concern that Indian regulators have with cryptocurrencies is lack of transperancy and clarity in the system,” economic analyst Pranjal Sharma said.

Pranjal further adds the government needs to authenticiate integrity of cryptocurrencies and provide clarity to investors.

India’s central bank has formed a committee to examine protocols related with regulating bitcoins, according to media reports.

Queries to the central bank went unanswered.

Analysts believe RBI’s weariness pertaining to bitcoins is associated with the aftermath of demonetisation when rumours gained ground about tax evaders utilising cryptocurrencies especially bitcoins to stash away their money.

Exchange platforms term this a ‘hoax’ with no substantive data available to back them.

“Bitcoin price surge in India has only happened in the last 3–4 months and there is no connection and the rumours are false,” Mitra Joshi, spokesperson for bitcoin trading platform ZebPay told in a telephonic interview.

-Hype and alternates-

A report in Indian Newspaper Indian Express pegs around 6 million Indians indulging in cryptocurrency trade.

India’s Income Tax department in December visited major trading platforms across Hyderabad, New Delhi, Bangalore and Mumbai, and may issue notices to around 4,000 users on suspicion of alleged tax evasion, the report adds.

But, founders of cryptocurrency platforms say, such measures are pushing more Indians towards adopting investment in bitcoins.

“Initially, when the investment was of miniscule volume, the government response was negligent but as the trading value surpassed $7 billion, the government started fearing the operations,” Shivam Thakral, CEO of cryptocurrency trading platform BuyUCoin told this reporter.

Some bankers like Nilesh Shah from Kotak Mahindra Mutual Fund believe India can launch its own cryptocurrency, an advice that India’s richest man Mukesh Ambani seems to have paid heed to.

“India has computational ability to launch its own cryptocurrency — Indicoin as we have millions of internet users and we can create a 500 billion dollar industry,” Shah told.

While Indian government drags its heels on regulating cryptocurrencies, the craze for the digital alternative to fiat currency has only shot up.

“Misuse of technology is not a reason to ban it and we need sensible regulations pertaining to cryptocurrencies,” Rastogi concludes.

Disclaimer: This journalist works with Agence France-Presse (AFP) as an economics correspondent. Please email manve.vishal@gmail.com for any feedback.

Urban Chronicler. Journalist. Words in AFP, Yahoo News, Channel News Asia, Global Voices, & Fair Observer. Fellow @ClimateTracking @Civicus @Splice