Crypto regulation: What you need to know about the potential ban on private cryptocurrency

The Bill proposes “to build a facilitative framework for the creation of an official digital currency which will be issued by the Reserve Bank of India”. Representational photo: istock

The Union Government will move a bill to prohibit most private cryptocurrencies in India in the Winter Session of Parliament, which starts November 29, according to a Lok Sabha bulletin released on November 23. The Bill proposes "to build a facilitative framework for the creation of an official digital currency which will be issued by the Reserve Bank of India".

These changes concern some 15-20 million Indians who are estimated by Indian crypto exchanges to have invested in the currency, as well as the country's crypto-tech market that is expected by Nasscom to grow to $241 million by 2030.

Here is what you need to know about the encrypted virtual currency and the government's view on it:

What is cryptocurrency?

A cryptocurrency is a digital or virtual currency. The name "crypto" comes from the "encryption" techniques used to protect the large network of computers on which the currency is based. This network is decentralised and, as such, designed to remain outside the control of central and government authorities. A technology known as blockchain, wherein a record of all the transactions that have ever been conducted is maintained and every transaction is confirmed by each computer on the network, is said to provide a secure structure for such trade.

‘Bitcoin' is the world's largest and most popular cryptocurrency. Ethereum, Dogecoin, Binance Coin, Tether, Ripple, Litecoin and Solana are some others. However, crypto tends to be marred by legal and regulatory uncertainties, its use towards illegal purposes, as well as exchange rate volatility.

Why is it in the news?

A Bill seeking to ban private cryptocurrencies was listed by the government for the upcoming Winter Session of Parliament. The Cryptocurrency and Regulation of Official Digital Currency Bill 2021 intends to prohibit "all private cryptocurrencies in India", according to a Lok Sabha bulletin. The Bill, however, allows for certain exceptions to "promote the underlying technology of cryptocurrency and its uses".

How many people own crypto in India? Who will be impacted?

Earlier this year, a broker discovery and comparison platform BrokerChooser seemingly incorrectly stated that at 100.7 million, India was home to the highest number of crypto owners globally. Nischal Shetty, the founder of bitcoin and cryptocurrency exchange, WazirX, disputed this on Twitter, saying the number was actually close to 15-20 million, based on estimates by Indian crypto exchanges. CoinSwitch Kuber and WazirX are among the well-known crypto exchanges to have emerged in India.

The urban population, as also young people from India's tier II and III cities, are among the ardent takers for this digital asset class.

In May 2021, India's digital currency market was estimated at $6.6 billion, versus $923 million in April 2020, according to blockchain data platform Chainalysis. Meanwhile, the crypto-tech market in the country is likely to hit $241 million by 2030, said a report released in September by Nasscom, in association with WazirX.

How is cryptocurrency used?

Cryptocurrency is mainly used to buy goods and services online, or traded for profit. In other rare instances, people have used crypto to crowdfund projects, including a recent documentary ‘Beyond the Border' by Kashmiri filmmaker Naseer Khanday about Afghanistan's skiing culture.

What is the official stand on cryptocurrency?

Governments and central authorities across the world usually express reservations about cryptocurrency because its decentralised structure is designed to operate outside the realms of their control.

PM Narendra Modi, in a recent meeting, shared a cautionary view, saying, "Take cryptocurrency or Bitcoin, for example. It is important that all nations work together on this and ensure it does not end up in the wrong hands, which can spoil our youth." Further, RBI governor Shaktikanta Das had recently said this form of currency was a threat to the financial system.

The government, however, has remained open to blockchain technologies and its applications.

Is this the first attempt at regulating cryptocurrency?

No. In 2018, the RBI had issued a circular, asking lenders to stop dealing in virtual currencies. The order, however, was set aside by the Supreme Court in March 2020, allowing banks to work with crypto exchanges. Interest in cryptocurrency and daily trading volumes rose after the circular was quashed.

(With inputs from IANS)