No one knows exactly when, but the govenrment is expected to ban all “private” cryptocurrency in India and simultaneously announce a sovereign digital currency sometime “soon”. This despite numerous appeals from the industry, and a failed attempt by the Reserve Bank of India (RBI) at sneaking in a ban in 2018 by preventing banks from touching crypto. The Supreme Court ruled this ban was unconstitutional last March.
To understand the ongoing controversy over cryptocurrency in India, we need to examine how we got here.
2008: A paper titled ‘Bitcoin: A Peer to Peer Electronic Cash System’ is published by a pseudonymous developer by the name of Satoshi Nakamoto.
2010: The first sale of an item using Bitcoin takes place, with a customer swapping 10,000 Bitcoin for two pizzas. This attaches a cash value to the cryptocurrency for the first time.
2011: Other cryptocurrencies began to emerge, including Litecoin, Namecoin and Swiftcoin.
- Bitcoin becomes embroiled in a controversy over claims it is being used on the dark web to pay for guns and drugs among quite a lot else.
2012-2017: Cryptocurrencies steadily gain traction. The price of Bitcoin shoots up from around $5 at the start of 2012 to almost $1,000 at the end of 2017.
- This period also sees cryptocurrency exchanges mushroom in India, including Zebpay, Coinsecure, Unocoin, Koinex and Pocket Bits.
- It is also almost perfectly bookended by two RBI press releases on cryptocurrencies. The first, dated December 24, 2013, says:
- Virtual currencies are not backed by a central bank.
- Their value isn’t underpinned by an asset and thus a matter of speculation.
The second, dated February 1, 2017 repeats these concerns.
- It’s thus safe to assume that the crypto boom that followed 2016’s demonetisation was an unintended consequence of that particular experiment. The emphasis on digital payments led to a search for alternatives to traditional online banking and drove tech-savvy customers to cryptocurrency exchanges.
Oct-Nov 2017: Two PILs are filed in the Supreme Court, one asking it to ban buying and selling cryptocurrencies in India, the other asking for them to be regulated.
- In November, the government forms a committee to study issues around virtual currencies and propose actions.
Dec 2017: The RBI and the Ministry of Finance issue statements on cryptocurrencies. The ministry compares them to ponzi schemes.
They issue more such statements but the status quo remains.
April 6, 2018: Suddenly, everything changes. The RBI issues a circular preventing commercial and co-operative banks, payments banks, small finance banks, NBFCs and payment system providers from:
- Dealing in virtual currencies
- Providing services to all entities which deal with them
Crypto exchanges, unable to access banking services in India, find their businesses crippled overnight. Trading volumes fall by 99% and by August 2018 about 95% of jobs vanish.
May 15, 2018: Faced with an existential threat, several exchanges filed a writ petition in the Supreme Court.
July 2019: The committee submits its report, recommending a ban on “private cryptocurrencies” in India.
March 4, 2020: Hope at last. The Supreme Court strikes down RBI’s banking ban on crypto, terming the April 6 circular unconstitutional. One of the SC’s reasons for overturning the ban is that cryptocurrencies are unregulated but not illegal in India. A decaying crypto market is jolted back to life.
- Exchanges see a sharp increase in interest as the SC ruling coincides with a crypto boom. The price of Bitcoin jumps more than 700% between April 2020 and February 2021. However, rumours of an impending ban persist.
Jan 29, 2021: The government says it will introduce a bill to create a sovereign digital currency and simultaneously ban all private cryptocurrencies. The recently-revived industry realises it faces a second existential threat.
- “The bill seeks to prohibit all private cryptocurrencies in India. However, it would allow certain exceptions to promote the underlying technology of cryptocurrency and its uses,” the government says.
We previously explained why the government’s categorising of cryptocurrencies as “public” (government-backed) or “private” (all others) is inaccurate and misleading. Click here to read that.
What happens next?
Apprehensive of a blanket ban, crypto exchanges and investors are fearing an exodus of both talent and business from India, similar to what happened after the RBI’s 2018 ban.
Back then, blockchain experts moved to countries where crypto was regulated, such as Switzerland, Singapore, Estonia and the US.
An outright ban will have a similar effect, according to Mathew Chacko, partner at Spice Route Legal. He said with a blanket ban, blockchain innovation, which has uses in governance, data economy and energy, will come to a halt in India.