Author – Anujit, India
On February 1st 2018, the Government of India (GoI), as part of its annual budget exercise, formally discouraged use of cryptocurrencies. However, GoI has also welcomed the blockchain technology, and vowed to explore it further.
Reserve Bank of India (RBI), i.e. India’s central bank, had earlier issues 3 warnings to the Indian citizens that they don’t consider cryptocurrencies as legal tender, and anyone trading in them must do so at their own risk. However, as far as GoI is concerned, the 2018 union budget speech by the finance minister, Mr. Arun Jaitley, was the clearest indication as yet that India discourages use of cryptocurrencies. Mr. Jaitley clearly states that GoI does not consider cryptocurrencies as legal tenders, and will take necessary measures to prevent using these to finance illegal activities or as part of payment transactions. In the Indian context, the annual union budget is far more than just a budget. The incumbent governments have traditionally used this occasion to unveil important policy directions, which are later actioned by the executive and legislature. What’s said in the budget reflects the viewpoint of the government, and judging by the 2018 union budget, cryptocurrencies are not welcome in India.
Cryptocurrencies, including the oldest of them all, Bitcoin, offers anonymity to the users. This has been abused by the criminals since almost the very inception of cryptocurrencies, to finance illegal activities. India has long been affected by terrorism, and it is well known that the funding of illegal activities bolster financing of terrorist violence taking place in Indian soil. Moreover, India has long been plagued by the problem of black money, causing common Indian citizens long periods of suffering, since the holders of this huge unaccounted cash pay no tax, and have built up their massive stash of black money by siphoning off public wealth.
The incumbent GoI has unequivocally stressed that they will continue to prosecute their twin wars against black money and terrorism in full throttle. The actions match up the words, as evidenced by the November 8th 2016 decision of GoI to invalidate high-value currency notes that were important tools in the hands of the black money holders, and were also used to finance terrorism. GoI has also invested significant resources and effort on AADHAR (literally meaning “Foundation”), the unique identify issued to Indian residents based on biometrics technology, and tied disbursal of subsidy to it, to plug leakage. The decision to discourage cryptocurrencies is consistent with their stated objective.
Additionally, GoI has also taken a serious view of the price volatility of the cryptocurrencies and the fact that they are not backed by any tangible assets. Earlier, an enormous number of Indian families had no access to formal banking system. GoI launched the “Pradhan Mantri Jan Dhan Yojana” (PMJDY), or Prime Minister’s People Money Scheme, which is India’s national mission for financial inclusion, in August 2014. By February 2017, 270 million bank accounts were opened under this scheme, bringing banking services to people who never had a bank account. GoI is obviously concerned that if large number of Indian citizens invest heavily on mathematical money and in turn lose their tangible assets due to price volatility of currencies that RBI can’t control in any way, the domino effect on the flagship financial inclusion mission will be very negative.
Considering Bitcoin’s massive downward slide in value, where the price has fallen to US $ 9,022 in February 2018 from the high of nearly US $ 20,000 in December 2017, GoI’s apprehensions don’t seem unwarranted. Consider the other recent news of Facebook banning cryptocurrency ads, and a US $530 million hack of Japanese Cryptocurrency exchange Coincheck, a cautious policy vis-à-vis cryptocurrencies on part of GoI can be considered to be along the expected lines. It’s to be noted that several other countries have already banned Bitcoin either partially or fully, such as Iceland, Ecuador, Bolivia, Russia, Sweden, China, Thailand, and Bangladesh.
In an example of neatly compartmentalizing policy making, Mr, Jaitley has simultaneously welcomed blockchain, the technology on which cryptocurrencies are built. He clearly states that GoI will explore this technology proactively in furthering the objective of a digital economy. In blockchain, a network of computers maintain a distributed database, where each node has full and latest information the entire blockchain has, making it truly decentralized. Every node is an equal point of authority, thus eliminating the need to route updates through any central point of authority, effectively eliminating middlemen. Updating a blockchain always means creating a new block record, which can be done by “Miners”, i.e. a combination of specially designed hardware, special purpose software, and their users, only after providing poof of work (POW). Since the other miners are also trying to create a new block for the reward it has in store for them, it is an intensely competitive environment, and a new block can be added only after significant number-crunching done at very high speed. Only the block record that successfully passes through this consensus mechanism is added, and by then it’s mathematically verified. This complex process of updating blockchain makes hacking a blockchain economically non-viable. GoI has rightly identified the presence of middlemen and tampering of records as major tools that corrupt in India use, and has, in fact, already started exploring blockchain as a remedy in their anti-corruption drive.
National Institution for Transforming India, or NITI Aayog, the premier think tank of GoI, is building the largest blockchain network in India, called IndiaChain. In addition to e-signatures, the use cases included are tracking of soil health, managing property records, stopping forgery of education certificates, managing documents and evidences to aid judiciary, and simplifying multi-factor authentication. It’s to be noted that the state governments of southern Indian states Karnataka, Andhra Pradesh and Telangana, as well as the state governments of western Indian states Maharashtra and Gujarat are also exploring blockchain for improving governance and service delivery to the citizens.
Experts have welcomed GoI’s positive outlook towards blockchain, and requested that the cryptocurrencies be regulated and not banned.