In the last few weeks, Bitcoin has burst back into the public discourse, following a huge surge in its price. The price, which began the year at under $4000 per bitcoin, reached $12,000 in June 2019. This has led many to speculate a potential return to the highs it saw in its price towards the end of 2017. For many, bitcoins and cryptocurrencies have been major technological revolutions that the world has seen over the past few years. The fact that a lot of demand for cryptocurrency stems from countries experiencing high inflation and currency devaluation, attests that bitcoin has emerged as a viable alternative to people reeling under economic duress.
In 2009, bitcoin was first introduced as an open-source software by anonymous programmer or group of programmers, under alias Satoshi Nakamoto. Its novelty of being not controlled by any network, government, bank or corporations, made its adoption easier in countries where people were dismayed by increasingly waning economic and political conditions. It came up as the ultimate solution for financial transactions, giving its users a total control over their finances.
Finding Solace in Bitcoins
The South American countries Venezuela and Argentina are perfect examples of soaring bitcoin adoptions due to economic hardships. About 98 per cent of Venezuela’s exports were based on oil. The shrinking oil revenue has meant that the country’s external debt has increased, to an extent, rendering its currency practically valueless. As a result, more and more people are turning towards bitcoin as an alternative to the Venezuelan bolivar. People use bitcoins and other cryptocurrency as a way of sending money home from other countries. For many people, storing their money in a digital wallet in the form of bitcoin, Litecoin, Dash or any other, is still a better option than holding on to the national currency. To provide a solution to the economic crisis, the government has also launched its own cryptocurrency, the petro, apparently backed by oil. As Venezuela goes deeper into political and economic crisis, an organisation called GiveCrypto.org is donating cryptocurrency to Venezuelans in need, to buy groceries and household goods.
In Argentina, the most pervasive problem is a weak economy, and a currency that has been quickly losing its value. Argentina’s government is looking at crypto and blockchain tech as a way to promote the country’s financial inclusion and reduce state costs. The government’s openness to blockchain projects has helped shape Buenos Aires into a hub of developers. Ripio, one of the several startup projects, is offering users a cryptocurrency exchange and software “wallet” for storing their digital assets. It has also launched a service that uses so-called ‘smart-contracts’ or blockchain-based computer programs that can be used to automate complicated financial transactions, to facilitate peer-to-peer lending. Costaflores, a winery from Argentina, has also presented a cryptocurrency that will be based on the value of a bottle of wine- a project that will also use blockchain technology to make the entire harvest process accessible to anyone who wishes to invest in the coin.
India has adopted a rather cautious approach to cryptocurrencies. In its first tenure, the Modi government stated that while it supports blockchain technology used across industries, from banking to agriculture and virtual currencies, it is not in favour of digital currencies. A proposed draft of “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019” has proposed a ten-year long prison term for people who, “mine, generate, hold, sell, transfer, dispose, issue or deal in cryptocurrencies”. The report also suggested the idea of a Central Bank Digital Currency (CBDC), or “Digital Rupee” which shall be the sole cryptocurrency in India.
Interestingly, the draft bill cites jurisdictions in various other countries, many of which, however have not banned cryptocurrencies out rightly, with countries like Canada, Thailand, Russia and Japan have shown their willingness for regulations.
In Resistance against the Ban
The draft bill has received a lot of flak from the Indian crypto community as being a regressive step and closing the doors for innovation. Even the Indian Information Technology industry body has also come out against the ban. The National Association of Software and Services Companies (Nasscom) believes that the government should work towards a risk based framework to regulate and monitor cryptocurrencies and tokens.
It is a fact that government and economic regulators across the world have been wary of private cryptocurrencies. Since neither a central issuing authority nor a central validating agency is required for the transactions, these currencies can exist outside the realm of authority and regulation.
The draft bill has already forced many crypto exchanges in the country to shut down. Koinex, one of the leading cryptocurrency exchanges in the country, shut down in June 2019 citing the “uncertainty and disruption” in the crypto sphere in India. Earlier, in September 2018, Zebpay had shut down its operations, after the RBI imposed an apparent ban on virtual currencies.
The anonymous nature of cryptocurrencies and their possible use for money laundering or terror financing, have been the major reasons cited by the government for its reluctance to adopt digital currencies. While national safety should be a major concern, it is imperative also, for India being the largest democracy in the world, to give its people the choice in spending their money and assets in the way they want. While some regulations to check money laundering and illegal uses may be looked at, an outright ban on bitcoins and other cryptocurrencies may have some unintended consequences. After all, for many cryptocurrencies stand as a way of having the maximum control over one’s own money. Such acts of forcing people with the ways of spending their own money, may lead to more and more people, towards greater adoption.
Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research.
This article was published in The Economic Society, SRCC click to read