The authorities of the countries all over the world react towards cryptocurrencies differently. Japan, for example, creates its own blockchain analogue of SWIFT, and in China, citizens are prohibited from trading tokens and participating in ICO. Soon, India may also replenish the camp of haters. There they propose up-to 10 years imprisonment for the use of crypto.
In mid-July, India surprised the crypto community with its tough stance on cryptocurrency regulation. A committee of experts from various ministries and departments suggested that the Ministry of Finance introduce changes to the regulation of cryptocurrencies.
First of all, the group stressed that the authorities should be open to the introduction of the state cryptocurrency, as for the private ones it left them in tatters, suggesting a complete ban. Those individuals, who will use private cryptocurrencies are proposed to be fined of up to $3.6 million or punished with a prison term of up to 10 years. How can this be implemented in real life is not clear for now. The main message, however, is quite straightforward.
“You may ban everything. The only question is how to control the execution of the ban. With regard to cryptocurrency, it is very difficult, so this prohibition, in my opinion, is a kind of warning procedure for those who have just begun to get acquainted with cryptocurrencies. The others will be able to easily get around it,” claims Vadim Popov, a cryptocurrency expert.
The authorities have not yet made a final decision, but it is quite possible that the ban is not far off. Especially given that Indian officials have disliked cryptocurrencies for quite long.
India vs cryptocurrencies
According to a committee of experts, the greatest danger associated with private cryptocurrencies is that they have recently appeared as “mushrooms after a rain”. Coins have been mainly produced abroad. It doesn’t prevent Indian citizens from investing in them.
Moreover, all such cryptocurrencies are owned by private companies or individuals, which is, according to experts, yet another threat. After all, private cryptocurrencies can not do the money, which duties means they are not able to replace fiat money. That’s why the group recommended to ban all cryptocurrencies except those issued by states.
“Ordinary cryptocurrencies have been emitted by someone unknown, uncontrolled, and very often (at least in theory) decentralised, and therefore carry many risks that are difficult to predict and measure — it’s easier to ban everything that does not belong to official financial institutions whatsoever” explains Vadim Popov.
As for the blockchain, according to Indian experts, this is almost manna from heaven, but only if it is controlled by the state.
For example, the group recommended the country’s central bank “to investigate the possibility of using distributed registry technology in order to create a faster and safer payment infrastructure, especially for international money transfers.” Experts are also confident that the blockchain can help create a low-cost KYC system. Anyway, it must be created by the ministries.
“Permits for creating state cryptocurrencies is a consistent move. After all, such projects will be controlled and centralised, there are less risks, they are similar to ordinary foreign currencies, so Indian experts treat them without fear. This coincides with their economic worldview,” says Vadim Popov.
The committee has already submitted its proposals to the government. It must once again review them and make a final decision.
India has long been known for its tough methods when it comes to cryptocurrency regulation. For example, in early July, Libra — a cryptocurrency that Facebook plans to launch — refused to enter the Indian market. The reason for this decision lies in the local regulation of the crypto industry.
And these are not allegations made by Facebook in order to put pressure on the authorities. The Indian crypto sphere literally suffocates. Back in April 2018, the Central Bank of India banned banks from cooperating with crypto business, including cryptocurrency exchanges. The ban also included private individuals associated with cryptocurrencies.
Financial institutions were given three months to shut down all operations with representatives of the crypto industry.
In general, the Central Bank of India is a long-time critic of cryptocurrencies. Back in 2013, it warned that tokens carry many risks and urged citizens to abandon their use. But the latest ban hit right in the heart of the industry and many companies were forced out of the market.
For example, the Koinex crypto exchange stayed afloat until the end of June 2019, eventually announcing the closure of the business. The reason for such decision was the constant bans of regulators, because of which crypto company can not develop normally in the country.
“We were constantly confronted with the refusal of payment services, the closure of bank accounts and the blocking of transactions related to trading in digital assets and even for transactions not related to cryptocurrencies: like salary payments, equipment purchases or rentals. Our team members and partners had to make excuses in the appropriate banks. And this is only because they worked with a digital asset exchange operator,” the exchange said in a statement.
And that’s not an isolated case. Last September, the largest in terms of daily trading volume Indian crypto exchange, Zebpay was also forced to leave the local market.
“Sanctions against our bank accounts have hit ours and our clients opportunities to conduct business as usual. At this stage we cannot find a way out and continue to provide cryptocurrency exchange services. Therefore, we stop our activity, ” stated the stock exchange.
Despite of the business outcome, the government sent even more ambiguous signals. The information leaked to the news that the authorities are either ready to completely ban cryptocurrencies, or they might legalise them, but under very tough conditions.
At the end of April 2019, the edition of The Economic Times even stated that the authorities had prepared a bill that should ban cryptocurrency in the country. Allegedly, the proposal said that almost all cryptocurrencies are scam and fraudulent pyramids. So, they should not be left in the country.
After that, the topic disappeared from the front pages of newspapers and appeared only together with the resonant statement of the committee about the ban on coins, fines and prison terms.
That’s however not the end of the story. The proposal from experts does not bear any legal obligations for the government, even though most of the committee members work in the government. However, the attitude of the authorities can be understood. After all, cryptocurrencies bear an existential threat for them.
“Regulators are afraid of losing their influence, since state funds and assets are a tool of power and influence, first and foremost. The state and its representatives are afraid of losing such an important control lever most than anything else — what if all of a sudden everybody would switch to cryptocurrencies? And how, for example, it would be possible to track taxable processes? This is a challenge for any state machine, and they all will all try to cope differently with the situation, which is new for them,” says Vadim Popov.
India is one of the largest economies in the world. And in terms of population, it may soon overtake even China. Therefore, if such a market is cut off from cryptocurrency, many will suffer.
However, even if the authorities decide to completely limit the use of cryptocurrencies, it is not clear how they implement this in practice. For example, in China, people are prohibited from participating in ICO. This, however, does not prevent citizens who use VPN and anonymizers from investing in cryptocurrency crowdfunding.
All in all, to limit anything in the modern, digital world is a meaningless idea. Instead of that, the authorities should better focus on creating working conditions for the development. But Indian officials are unlikely to agree.
Author: Alexey Ryabukha