Why India’s Plan to Ban Cryptocurrency will Backfire?
Bitcoin tumbles from record highs as India eyes crypto ban
India plans to propose a law banning cryptocurrencies, fining anyone trading in the country, or even holding such digital assets. This bill could potentially criminalize possession, issuance, mining, trading, and transferring crypto-assets.
If this Law officially passes, India would be the first major economy to make holding cryptocurrencies illegal. China has banned crypto mining and trading but does not penalize possession.
India’s banning of virtual currencies such as Bitcoin is in line with building a framework for an official national digital currency named Lakshmi or Lakshmi Coin. This means investors will not be able to participate in the booming Bitcoin (Digital Gold), missing out on the crypto revolution.
Bill would give crypto holders six months to liquidate their crypto holdings. Currently, Around 8 million investors hold $1.4 B in Crypto.
India’s monetary policy regulator had in 2018 banned crypto transactions after a string of frauds in the months following Prime Minister Narendra Modi’s sudden decision to ban 80% of the nation’s currency. Cryptocurrency exchanges responded with a lawsuit in the Supreme Court in September and won respite in March 2020.
Modi government is also widely unpopular for policing the internet and causing internet shutdowns in several locations.
Why would they ban something so revolutionary? (Potential reasons):
- Cryptocurrency is a payment mechanism that doesn’t require a central authority.
- Cryptocurrencies are prone to massive volatilities.
- Money can flow easily across border making it difficult to track every transaction
- Tax Evasion and Money Laundering: Bitcoin transactions are encrypted and while they can be tracked by involved parties, bitcoin provides a way to keep money and transactions away from the prying eye of the regulators. There is a risk that it could be used to fund crime or illicit terrorist activity — another reason is that it can be a route to circumvent capital controls.
Reasons why this will backfire:
- Every country that has tried to ban cryptocurrencies has led its adoption rate to expedite even more. For example, Pakistan banning Bitcoin led its usage to skyrocket.
- It's super hard to ban bitcoin: Bitcoin and all other cryptocurrencies are completely decentralized peer-to-peer systems. There is no central server to shut down, no one to catch, and, crucially, no one prosecutes — no one that will cause the currencies to crumble, at least.
- Pushback from the retail investors (Investor FOMO is real)
- You can’t ban the internet: This statement came in the form of a question to Jeremy Allaire, who is the co-founder and CEO of global financial services company Circle. In his response, Allaire explained the new reality created by the creation of Bitcoin. “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,” said Allaire. “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.”
Can fiat do everything that cryptocurrency does?
Here are a few very specific examples of how cryptocurrencies provide something fiat can’t (or won’t):
- Send money back home to your family, quickly, cheaply and without the need for 3rd party fees (such as with Western Union, Venmo, and bank wires). Otherwise known as remittances.
- Being able to have a place to save money that is not subject to requirements for having a bank account and requires no corresponding fees or limitations for using your money (i.e. inactivity charges and daily ATM limits).
Have financial privacy, which is impossible if you have a bank account. Banks own your financial data regarding all the transactions hitting your account and sell it to partners that they choose. (Read your next privacy statement, you’ll be shocked!)
Cryptocurrencies also open the door to blockchain verified transactions, which allow for a more transparent and accessible finance infrastructure that is autonomously run by community consensus. With such financial systems, data once reserved for the most wealthy is now available to anyone with an internet connection.
Blockchain ledgers, the foundation of cryptocurrencies, enable global, real time payment settlement. You could conceivably run your commerce business, for instance, without third party banks or payment processors taking a cut. Companies utilizing crypto have access to a global market and transactions are quick and cheap, for the most part. Blockchain ledgers are immutable, open, and supported by a distributed set of computers (nodes) that all run the coin’s software simultaneously in real time, drastically reducing the chances of currency manipulation and hacks (at least we know this is true with bitcoin security).
You cannot do any of the above with fiat money.
- Banning cryptocurrencies would be like banning the internet in the 1990s and will set back India by years. Bitcoin is all about freedom. It’s a hedge against a bad fiscal policy. India banning this means it’s technically stepping away from the future.
- The entire cryptocurrency ecosystem, both legal and otherwise, is evolving so quickly that government regulations can’t even keep up, let alone plan.
- The individuals most affected by government regulation are the ones already engaged in legal business activities and ventures — that is, those paving the way for an innovative and competitive financial future, and one with a global reach. Outlawing bitcoin simply restricts legitimate business and drives the criminals underground, depriving the private sector at large of the benefits of the cryptocurrency. Without government approval, legal businesses and users can’t take advantage of bitcoin’s speed, low costs, flexibility, and anonymity.
- So, the regulation would simply be driving the creation of another black market while denying the substantial benefits of cryptocurrency to law-abiding citizens everywhere.
Cryptocurrency offers a way out of the system. Even if Bitcoin was not invented for the purpose of being a threat to a given nation’s monetary sovereignty, it is certainly becoming one — and if it doesn’t, then it is not working as intended.
Logistically, banning cryptos could be impossible
How would they actually do it? Let’s walk through it. The government might say, let’s disallow fiat exchange using banks. Okay, the crypto community builds its own banks (already in the process). Or, we’ll buy bitcoin in other ways, maybe do some mining, and trade on a DEX.
Well, then let’s ban all crypto to crypto transactions. Okay, we’ll just get a VPN and maybe invest more in privacy coins.
Let’s ban the exchanges. Okay, and so begins the move to offshore OTC markets.
Maybe we should just block all websites that are crypto-related. We hate to tell you that soon domains will be living on a blockchain, immutable.
Well! We’ll just cut off Internet service to those people we suspect of using crypto. Okay, then it’s time to check out Blockstream’s free bitcoin via satellite service.
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