Use of Cryptocurrencies at this moment in a bit shady:
- Bitcoin, the most prominent among cryptocurrencies, has fluctuated wildly in value, even over short periods of time.
- As per some analysts, for now, “speculation remains Bitcoin’s primary use case”.
- Its use in illegal online marketplaces that deal with drugs and child pornography is well-documented.
- There have been cases of consumers being defrauded, including in India.
World is cautious about the cryptocurrencies:
- Governments and economic regulators across the world are wary of private cryptocurrencies.
- As they need neither a central issuing authority nor a central validating agency for transactions, these currencies can exist and thrive outside the realm of authority and regulation.
- They are even deemed a threat to the official currency and monetary system.
Few takers for cryptocurrencies in Indian government:
- Indian policymakers and administrators have time and again made clear their distaste for cryptocurrencies.
- In his Budget speech in 2018, Finance Minister said the government doesn’t consider them legal tender.
- The Reserve Bank of India has repeatedly warned the public of the risks associated with dealing with cryptocurrencies.
Recommendation to ban all private cryptocurrencies:
- An inter-ministerial committee recently recommended that India should ban all private cryptocurrencies, that is, Bitcoin and others like it.
- The committee even drafted a law that mandates a fine and imprisonment of up to 10 years for the offences of mining, generating, holding, selling, dealing in, transferring, disposing of, or issuing cryptocurrencies.
- The decision hardly comes as a surprise, considering they have little backing in Indian government.
- Their existence owed almost entirely to advanced encryption technologies.
- Committee in favour of Central bank-issued cryptocurrency:
- The committee while recommending ban on private cryptocurrencies has advocated a central bank-issued cryptocurrency.
Is banning the most effective way to deal with cryptocurrencies?
- The question then is whether banning cryptocurrencies is the most effective way to respond.
- The inter-ministerial committee believing in ban, and recommended it.
- China, which India has taken a cue from, has gone for an outright ban.
But it cites countries which haven’t actually banned them:
- Six of the seven jurisdictions that the committee’s report cites have not banned cryptocurrencies outright.
- They are regulating them, not banning them:
- Many of them, including Canada, Thailand, Russia and Japan, seem to be moving on the path of regulation, so that transactions are within the purview of anti-money laundering and prevention of terror laws.
Banning could be ineffective as private traders can use overseas platforms:
- Owing to the network-based nature of cryptocurrencies, after banning domestic crypto exchanges, many traders turned to overseas platforms to continue participating in crypto transactions.
- Even in China, trading in cryptocurrencies is now low but not non-existent.
Regulation rather than ban could be considered:
- It is not clear from the report on why an outright ban is a superior choice to regulation, especially in a field driven by fast-paced technological innovations.
- There should be more debate before government brings in any law to ban the cryptocurrencies, than regulate them.
GS Paper III: Economy